Speaker 1:        Welcome to the Guerdon Associates Podcast. This podcast is based on the November 2026 issue of Guerdon News, which is the monthly newsletter articles published by Guerdon Associates. We begin by covering a leadership appointment at the GECN Group before examining the 2026 ISS Global Benchmark Policy Survey on investor voting priorities. We then detail Glass Lewis’s upcoming transition to a four perspective proxy voting model and analyse the moderation and earnings per share growth forecast across the ASX 100. Finally, we break down a structured response framework for boards facing a remuneration strike at their annual general meeting. So imagine a scenario where a remuneration framework faces a strike at the annual general meeting.

Speaker 2:        Right. I mean, the immediate reaction for many boards is to initiate a complete redesign of the pay structure.

Speaker 1:        Yes, but if you look closely at the underlying mechanics of shareholder voting, the framework itself might align perfectly with business strategy. The actual failure lies in the communication of that strategy. So today we are analysing the underlying mechanisms of corporate governance, investor voting priorities, and the executive remuneration.

Speaker 2:        We can begin with the appointment at the GECN group.

Speaker 1:        Right. So Dr. Christoph Walser is the newly appointed managing director of the GECN group.

Speaker 2:        Yes. And Dr. Walser brings 20 years of operational executive leadership across Europe and Asia Pacific. His background spans retail, consumer goods, and professional services. And that includes roles with Intersport International, OBI, DKSH, and PWC.

Speaker 1:        And his expertise covers strategy and growth, internationalisation and market entry, business transformation, including digital and AI adoption and M&A. When you consider the intersection of these fields, integrating artificial intelligence into mergers and acquisitions requires a granular understanding of both technological capability and organisational restructuring.

Speaker 2:        Right, which builds on previous collaboration between Dr. Walser and our team through the GECN AI Centre of Excellence.

Speaker 1:        Moving on to our next story on investor voting priorities.

Speaker 2:        So the 2026 ISS Global Benchmark Policy Survey establishes benchmark voting policies by gathering responses from global institutional investors and issuers.

Speaker 1:        According to the research published by Guerdon Associates in the ISS Global Benchmark Policy Survey article, the Asia Pacific findings evolve a data scope of 13 out of 253 respondents. The focus for this region is on accountability for audit firms facing regulatory sanctions or systemic process deficiencies.

Speaker 2:        And the responses vary based on jurisdiction, specifically whether shareholders vote on auditor appointment and removal. I mean, in Australia, shareholders have the final vote.

Speaker 1:        Okay. So how do the responses break down?

Speaker 2:        Well, the survey responses show that 50.9% of investor respondents and 23.8% of non-investor respondents hold both the auditor and the directors responsible for their selection accountable.

Speaker 1:        Right. And the next highest response?

Speaker 2:        The next highest directs accountability at the audit company alone, which was selected by 39.7% of investor respondents and 38.1% of non-investor respondents. ISS also examined factors assessed when a company continues engaging in audit firms subject to regulatory findings.

Speaker 1:        And what were the findings there?

Speaker 2:        86.4% of investors and 69.8% of non-investors selected the severity and nature of findings or sanctions.

Speaker 1:        Okay.

Speaker 2:        This is followed by continuing sanctions or restrictions at 57.9% for investors and 40.6% for non-investors.

Speaker 1:        And what about board review?

Speaker 2:        Evidence of robust audit committee or board review disclosed to shareholders was recorded at 57.1% for investors and 34.9% for non-investors.

Speaker 1:        I question why changing the lead audit partner, which is a requirement in Australia every five to seven years, was selected by less than 10% of both groups. This indicates respondents do not believe audit issues are resolved by replacing the partner alone.

Speaker 2:        Right. Systemic process deficiencies typically reside within the operational structure of the audit firm itself. So a simple personnel change does not address the root cause of regulatory sanctions. We can analyse the North American statistics to understand shifting priorities.

Speaker 1:        Go ahead.

Speaker 2:        Well, 71% of investors express concern regarding fully discretionary bonuses for financial services, while 85% of non-investors do not.

Speaker 1:        Right.

Speaker 2:        But transparent retrospective disclosures and factor weightings mitigate this concern for over 80% of both investors and non-investors.

Speaker 1:        And regarding long-term incentive performance measure disclosure.

Speaker 2:        Many companies do not disclose forward-looking targets stating it could result in competitive harm. 79% of investors agree this rationale is less compelling for relative targets, whereas non-investors are divided.

Speaker 1:        The mechanics here involve the difference between absolute financial figures and relative market positioning. Disclosing relative targets does not inherently reveal proprietary internal financial forecasts, which addresses the competitive arm argument.

Speaker 2:        Exactly.

Speaker 1:        We also have the May 2026 SEC proposed rule exempting many US companies from say on pay voting requirements. In cases where say on pay votes are absent, 50.4% of investors direct negative recommendations initially to the remuneration committee chair.

Speaker 2:        Conversely, 54.0% of non-investors felt adverse recommendations on directors were inappropriate if the company is exempt from say on pay while 23.8% favoured targeting the committee chair.

Speaker 1:        And when evaluating board responsiveness to prior low support.

Speaker 2:        67% of investors want boards held to say on pay dissent thresholds, under 70% support in the US and 80% in Canada when committee members face reelection. Meanwhile, 46% of non-investors prefer the standard 50% majority hurdle.

Speaker 1:        Okay, let’s move to the UK and continental Europe.

Speaker 2:        Right. Remuneration discussions there focus on regional competitiveness. 38% of investors support hybrid incentive plans, which combine time-based and performance-based elements, provided they remain predominantly performance-based and are supported by clear rationale.

Speaker 1:        And non-investors?

Speaker 2:        Non-investor respondents express 23% unconditional support compared with 4% of investor respondents. Rationale accepted for these plans includes US exposure, competition for international talent, evidence of shareholder consultation prior to implementation, and clear disclosure on why the structure is preferable.

Speaker 1:        What structural elements garner support?

Speaker 2:        Retaining a performance-based component, vesting and holding periods, malice and clawback provisions, and a reduction in maximum award opportunity relative to performance-based awards.

Speaker 1:        And in continental Europe specifically?

Speaker 2:        38.1% of investors accept time-based equity in lieu of cash fees for non-executive directors. Safeguards for this include reasonable overall remuneration, post-vesting holding periods, purely time-based structures and clear rationale.

Speaker 1:        The survey demonstrates that global proxy voters focus on documented rationale and transparency over opposing retention or discretion. When a board utilises a hybrid incentive plan, providing explicit communication detailing the structural elements and the consultation process directly influences shareholder support levels.

Speaker 2:        Yes. To summarise, documented rationale and formulaic transparency remain the primary defence at the annual general meeting.

Speaker 1:        Shifting gears to another proxy advisor update.

Speaker 2:        Glass Lewis is implementing an update that affects annual general meeting recommendations.

Speaker 1:        Guerdon Associates articles published in the Glass Lewis Proxy Changes update outline a shift occurring in September 2027. So Glass Lewis is replacing a single benchmark policy with four distinct proxy research perspectives.

Speaker 2:        Right. Those are business fundamentals, foundational governance, global stewardship, and sustainability focused.

Speaker 1:        This shift addresses the disparity in how investors approach fiduciary duty and stewardship, particularly between Europe and the US. Please break down the differing criteria.

Speaker 2:        Sure. The differing criteria provide a continuum for investors. Under business fundamentals, companies are assessed on traditional governance, audit, capital, and remuneration expectations with no minimum board diversity quotas.

Speaker 1:        Okay. Does performance factor into the governance expectations?

Speaker 2:        It does. Top quartile relative total shareholder return earns added latitude on governance expectations, including pay. Foundational governance also assesses traditional expectations and while total shareholder return performance informs analyst judgement , there is no formal threshold providing leniency on pay or governance expectations.

Speaker 1:        And what about global stewardship?

Speaker 2:        Global stewardship adds financially material sustainability risks, governance of non-financial risks, sustainability performance, and completeness of non-financial reporting to the traditional considerations.

Speaker 1:        Right.

Speaker 2:        Consideration of company performance is case by case and higher expectations are set in sectors where issues are likely to be financially material, including mining, oil and gas, utilities, apparel, agriculture, and food.

Speaker 1:        Okay. And the fourth perspective, sustainability focused?

Speaker 2:        That incorporates system level sustainability considerations, impact on the environment and society, board level environmental and social expertise, responsible tax practise, and assurance over non-financial reporting.

Speaker 1:        Anything else?

Speaker 2:        Yes. The intended use of proceeds at emission-intensive issuers, the environmental and social implications of proposed transactions, and a stakeholder alignment test for remuneration. The sustainability-focused model does not use financial performance as a mitigating factor to non-financial issues, and ESG factors are expected to be included in performance measurement.

Speaker 1:        Given the merger between Clarity AI and GlassLewis, I want you to analyse how a software as a service platform providing ESG datasets physically executes this multi-perspective policy refresh. I mean, Clarity AI provides the AI infrastructure required to process these varying data inputs, but I want to understand the mechanical process of generating four separate recommendations from one set of company disclosures.

Speaker 2:        Well, the AI infrastructure processes the information against a set of 18 shared principles that remain across all four models. These principles expect all companies to have independent boards, appropriately structured committees, accountable directors who are responsive to meaningful dissent, pay align to the long term, and fairness to unaffiliated shareholders. The system operates by scanning corporate disclosures and isolating specific text inputs and performance metrics. It then maps these isolated inputs against the distinct criteria of the four models.

Speaker 1:        So the difference lies in the outputs generated by the specific parameters of each model.

Speaker 2:        Exactly. The identical remuneration report may trigger an against recommendation under the sustainability-focused model if the framework does not feature explicit environmental and social metrics, while the business fundamentals and foundational governance perspectives generally oppose requests to tie remuneration to sustainability measures.

Speaker 1:        This means each perspective generates different recommendations depending on how the company performs, manages material risk, and measures executive performance. The technology effectively functions as a parsing engine, categorising a single corporate action into four parallel evaluative frameworks simultaneously.

Speaker 2:        To summarise, remuneration committees need to understand which of the four perspectives their specific investors align with to secure majority shareholder support.

Speaker 1:        Moving on to our next story about executive incentive targets.

Speaker 2:        Yes. We are looking at trends and earnings per share growth forecasts and how they impact long-term incentive plans.

Speaker 1:        According to the research published by Guerdon Associates in the EPS Outlook article, statistics on ASX 100 companies show the forecast three-year EPS compound annual growth rate changed from 16.7% in October 2025 to 14.2% in October 2026.

Speaker 2:        And the median forecast changed from 10.5% to 9.5%. This moderation is driven by domestic cost pressures, monetary policy constraints and productivity growth.

Speaker 1:        There are sector variations across the ASX 100 over this period, right?

Speaker 2:        Yes. The three-year EPS compound annual growth rate forecast for materials changed by minus 13 percentage points, dropping from 36% to 23%. Financials changed by minus one percentage point. Consumer discretionary changed by minus three percentage points.

Speaker 1:        Okay.

Speaker 2:        Healthcare changed by minus five percentage points. Real estate changed by minus two percentage points. Communication services changed by minus five percentage points.

Speaker 1:        Were there any sectors that saw no change?

Speaker 2:        Consumer staples saw zero percentage points of change. Industrials changed by minus one percentage point and utilities changed by minus two percentage points.

Speaker 1:        And what about increases?

Speaker 2:        Information technology increased by five percentage points, moving from 27% to 32%, and energy increased by 51 percentage points, moving from 11% to 62%.

Speaker 1:        Right. So across 18 companies in the ASX 100 with disclosed EPS targets in their FY27 LTI plans, 67%, which is 12 companies, did not change their targets compared to their FY26 grants.

Speaker 2:        The companies that did make a change to EPS requirements in their FY27 LTI plans altered either the threshold, the stretch, or both the threshold and stretch targets.

Speaker 1:        Let us analyse the distribution of LTI targets versus analyst consensus estimates. For FY27, 17% of companies set threshold vesting requirements that exceed consensus estimates. This is an increase from 6% of companies in FY26.

Speaker 2:        We also see that 50% of FY26 grants and 39% of FY27 grants have EPS vesting scales where consensus sits within the range from threshold to stretch. Additionally, 44% of grants in both years had stretch requirements positioned below consensus.

Speaker 1:        I mean, boards face a challenge when prospectively disclosing EPS targets for CEO equity grants, given that analyst consensus forecasts are readily available to proxy advisors and investors for comparison.

Speaker 2:        When establishing these targets, remuneration committees must balance internal company forecasts against externally visible market expectations. While eight of the 18 companies have stretch EPS compound annual growth rate targets positioned below consensus in FY27 LTI plans, the difference between stretch and consensus is two percentage points on average.

Speaker 1:        Shareholders do not expect boards to align LTI targets strictly with analyst consensus for each grant, as this leads to targets varying year to year.

Speaker 2:        However, shareholders might not support LTI grants that indicate awards vest at maximum if management misses consensus. Consideration of market expectations is assessed by proxy advisors, especially if the company has a history of high LTI vesting outcomes, prompting questions on how challenging the targets are.

Speaker 1:        Right. Investors require LTI performance requirements to be based on measures aligned with value creation. The moderated EPS outlook has resulted in more LTI plans with targets positioned above consensus compared to FY26.

Speaker 2:        By setting a threshold that exceeds consensus estimates, boards establish a baseline requiring management to outperform the broader market expectation before any equity vests.

Speaker 1:        Okay.

Speaker 2:        To summarise, boards may prefer to maintain consistent EPS target ranges over time, but companies with a history of high vesting outcomes face scrutiny if internal forecasts change.

Speaker 1:        Shifting gears to the consequences of shareholder misalignment.

Speaker 2:        We turn to the structured response framework for boards facing a remuneration strike. Annual general meeting season is a period where institutional investors and proxy advisors expand scrutiny beyond traditional pay for performance metrics to incorporate corporate governance, accountability, and statutory pressures.

Speaker 1:        Glass Lewis is tightening formulaic evaluation of executive pay in their 2026 benchmark policy guidelines, and the 2026 AGM season follows a trend of shareholder dissent from previous financial years. Guerdon Associates articles published in the Remuneration Strike Action Plan outlined phase one of the action plan.

Speaker 2:        Which is identifying if a strike is based on a disclosure error or a structural objection. Factual or explanatory errors stemming from an omission or ambiguous wording in the remuneration report require swift action via an ASX release and direct contact with key investors before the poll closes.

Speaker 1:        And structural or governance objections reflect a core policy stance. Determining whether the objection reflects a flaw or an application of market standards dictates the subsequent communication strategy.

Speaker 2:        Phase two requires evaluating alignment across three buckets. Those are quantitative alignment, structural and governance.

Speaker 1:        Break this down for us.

Speaker 2:        Quantitative alignment includes peer benchmarking positioning where proxy advisors evaluate executive quantum based on maximum opportunity rather than target pay. This bucket also includes the payment of STIs and LTIs during periods of negative total shareholder return.

Speaker 1:        Right. So if operational performance is strong despite macroeconomic headwinds, the rationale must be articulated explicitly in the disclosures.

Speaker 2:        Exactly. The structural bucket covers the adoption of restricted stock units, the weight of non-financial LTI and cross-border pay discrepancies. For dual listed entities or ASX companies with US or UK operations, geographic pay differentials must be justified with a rationale for using global peers.

Speaker 1:        And the governance bucket?

Speaker 2:        The governance bucket includes the application of malice and clawback provisions for operational failures, safety incidents, or cyber breaches. It also covers mandatory AASB 18 implementation affecting income statement presentation and scrutiny over non-financial metrics.

Speaker 1:        Unadjusted use of underlying EBITDA or NPAT that excludes one-off impairments, M&A costs, or restructuring expenses while keeping target thresholds low draws pushback from investors assessing the validity of the performance measures.

Speaker 2:        Yes.

Speaker 1:        I challenge the assumption that an against vote automatically requires the board to overhaul the framework. Please specify the conditions under which a board should stand its ground on strategy rather than immediately capitulating to the proxy advisor recommendation.

Speaker 2:        Well, this is addressed in phase three and phase four. Phase three identifies whether the objections are valid. Scenario A applies when the grievance has merit, such as poor target setting or discretionary overlays rewarding underperformance.

Speaker 1:        Right.

Speaker 2:        In this scenario, the board acknowledges the feedback, adjusts incentive structures, formalises discretion policies, and engages key investors.

Speaker 1:        And scenario B?

Speaker 2:        Scenario B applies when the framework aligns with the business strategy, but communication and disclosures failed. Under these conditions, the board stands its ground on strategy and retains the core design. The board takes responsibility for ambiguous disclosures and refines the narrative using plain language, target to payout charts, and explanations of board discretion.

Speaker 1:        The mechanics here involve identifying that the structural foundation is sound and the failure occurred solely in the transmission of the rationale to the shareholders.

Speaker 2:        Exactly.

Speaker 1:        And phase four provides the execution checklist to operationalise that strategy.

Speaker 2:        Correct. Phase four provides an execution checklist. Step one is a post AGM audit to debrief with major shareholders away from the AGM season. Step two is an independent review of the framework against company strategy.

Speaker 1:        What does step three involve?

Speaker 2:        Step three is stress testing prospective STI and LTI outcomes against a range of financial scenarios to test for pay for performance disconnects.

Speaker 1:        Okay. And step four?

Speaker 2:        Step four is documenting clear frameworks governing how the board evaluates non-financial risk, safety, cyber events, and accounting adjustments. And step five is conducting targeted off-season engagement sessions with institutional investors prior to the next STI and LTI grants.

Speaker 1:        Following this structured framework separates communication gaps from structural flaws and maintains discipline around pay for performance alignment. For those of you navigating these structures, executing these five steps outside of the proxy voting window allows for a more analytical exchange with your investor base.

Speaker 2:        To summarise, a strike represents a demand for better communication, offering a chance to refine rationale and rebuild institutional trust rather than automatically overhauling the framework.

Speaker 1:        This concludes our analysis of the November 2026 issue. I want to leave you with a final thought based on the information we have covered today. As proxy models splinter into different perspectives and investor scrutiny intensifies on both financial and non-financial disclosures, perhaps the future of executive remuneration is not about finding a universal standard, but rather constructing a bespoke framework that actively challenges industry consensus. Thank you for listening to the Guerdon Associates podcast.