Twenty years on and still no agreement; Guerdon Associates’ and Glass Lewis’s 20th annual Remuneration and Governance Forum on March 3^rd saw different debate perspectives focused on the relationship between company culture and remuneration, aiming for remuneration efficiency, and proxy advisors and remuneration consultants divergences.

The culture drives remuneration structures, or remuneration frameworks shape culture discussion highlighted that the relationship is dynamic and interdependent:

• High-accountability, performance-intense cultures tend to support higher variable pay and greater upside.
• More collaborative or purpose-led organisations often emphasise stability and moderated quantum.
• Where organisations seek cultural change (e.g. greater entrepreneurialism), remuneration frameworks may need to evolve progressively to support that shift.
• Hiring practices should account for cultural fit and expected remuneration practices, acknowledging the divergence for global talent.

There was broad agreement that remuneration should influence culture, but not define it. Sudden structural changes (such as sharply increasing variable pay) risk unintended behavioural consequences.

Other key themes included:

• Private companies have greater freedom in remuneration frameworks than listed companies, as they are subject to less regulatory oversight. That they have pretty much the same investors suggested more debate is pending.
• CPS 511 deferral requirements are reinforcing longer-term thinking, particularly in superannuation and not-for-profit environments. To critics of APRA regulation, this suggests that longer term thinking did not feature much where our pension monies reside pre the regulation.
• Deferral can have proportionally greater impact in lower-quantum NFP sectors, affecting retention dynamics.
• Investors place significant weight on trust in the board when assessing stretch targets and maximum outcomes.
• Safety and non-financial metrics often serve as cultural signals, even where weighting is modest.
• Gateway mechanisms for safety were generally preferred to purely formulaic penalties, with context and management control remaining important considerations.
• Australian companies face tension between domestic investor expectations and global talent markets, particularly for specialised or internationally mobile executives.

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The concept of “remuneration efficiency” was explored, where the perception gap between executives and investors constrains efficiency.

A key insight was anchoring behaviour:

• Executives tend to anchor to target remuneration.
• Investors anchor to maximum opportunity, assessing potential risk exposure even if the probability of maximum payout is low.

Design considerations discussed included:

• Clear differentiation between threshold, target and maximum outcomes.
• Ensuring maximum reflects genuine outperformance.
• Linking incentives to controllable value drivers.
• Avoiding in-flight changes that weaken credibility.

Investor sensitivities were also outlined:

• Large fixed pay increases (due to their compounding and permanent effect).
• Retention and ad hoc bonuses that create inequity.
• Upward discretion without clear justification.

On structure:

• Performance-linked incentives remain strongly preferred.
• RSUs may be appropriate in limited circumstances but require strong strategic rationale, modest scale and clear investor engagement.
• Stretch is generally viewed as more appropriate in long-term incentives than short-term incentives, to discourage short-term risk-taking.
• Remuneration frameworks can vary as long as they are best fit for the company based on strategy, sector and stakeholders.

While transparency is valued, publishing explicit probabilities of achieving targets was viewed as potentially counterproductive.

Engagement emerged as critical. Where boards anticipate material framework changes, proactive shareholder consultation well ahead of the AGM significantly improves support.

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Remuneration consultants and proxy advisors often have differing views on remuneration. The debate brought to light several points of contention.

Benchmarking

• Reliance solely on market capitalisation was criticised as not a particularly valid indicator of job scope.
• Proxy advisors described benchmarking as a starting point or sense-check, supplemented by deeper industry analysis.
• Remuneration consultants suggested that there was not much evidence of proxy adviser sense checking, and advocated for greater weight on stable metrics (e.g. revenue, assets) and tighter peer groups consisting of direct competitors.

Global Talent

• Hiring overseas executives suggests global market comparisons.
• Tension remains between international labour market pricing and Australian investor reference points.
• Global data is not incorporated into proxy adviser analysis despite access to it.
• Australian remuneration is 2^nd lowest on a global scale and companies appear fearful of paying for global talent, even though reasonable given their track records.

M&A and Pay Increases

• The consensus was that automatic pay increases following acquisitions that enlarge company size is highly questionable. Remuneration should be reflective of experience and background, and executives in a newly merged entity have not proven themselves yet.
• Materially larger, more complex organisations may justify adjusted pay, provided incentives ensure value accretion and downside risk.

Stretch and Asymmetry

• Maximum payouts in the ASX 200 are relatively rare, raising debate about whether current frameworks sufficiently reward exceptional outperformance that entails risk.
• Concerns remain for above-target outcomes that occur alongside weak shareholder returns.
• Other red flags include lower targets compared to prior years, prevalence of vesting only on non-financial measures and lack of variability of outcomes.
• Downward discretion is generally more accepted than upward discretion.

LTI Timeframes and Two-Strikes Rule

• Three-year performance periods were acknowledged as market convention rather than actually being applicable to a given company.
• The remuneration report vote remains an important mechanism for assessing board judgement on executive performance and alignment.
• The two strikes rule constrains aspirations. Returns on the ASX are poor relative to other countries.
• Increased executive and director ownership was highlighted as a complementary alignment tool.

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Concluding Observations

Across all sessions, several consistent themes emerged:

• Remuneration both reflects and reinforces culture but should not direct it.
• Trust and engagement between boards and investors are critical.
• Structural integrity is preferred over reactive adjustments.
• Clear performance differentiation supports credibility.
• Global competitiveness and domestic governance expectations remain in tension.
• Long-term alignment and shareholder experience sit at the centre of modern remuneration design.

See HERE for the governance topics discussed during our forum and HERE for the seasonal review of proxy voting trends.

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