Remuneration issues have been high on the agenda this annual general meeting season as shareholders sought explanations on the quantum of Executive pay and pay for performance alignment.
Companies in the troubled resources sector were under particular scrutiny; Boards were faced with the challenge of retaining talented Executives as earnings and share prices continued to decline.
However, shareholder engagement has been key, as noted by the Governance Institute of Australia. Many companies in the sector that met with investors to discuss and clarify areas of concern received strong support for the Remuneration Report.
In other cases, companies were reluctant to consider advice from proxy firms. Retail veteran Gerry Harvey labelled the advisors “theorists” with little understanding of how to run a public company, while Premier Investments Chairman Solomon Lew argued that they “are not the buyers of the stock”.
First Strike
Prominent companies to receive strikes this season include:
• 3P Learning Limited
• ALS
• Ansell
• Arrium
• Ausnet Services
• Cardno
• Downer EDI
• ImpediMed
• Pacific Brands
• Prime Media Group
• Premier Investments
In general, strikes or protest votes occurred where:
• Termination benefits were too generous
• Quantum of pay was excessive, especially when the company’s market capitalisation was considered
• Corporate governance practices were questioned
• A weak link between pay and performance
• Performance hurdles were inappropriate, unclear or overly complicated
• A greater proportion of STI and/ or LTI should be in the form of equity
• Performance period for LTI was not long enough
• Major shareholders exerted influence over the vote
Notably, Ausnet’s strike was the result of backlash from two overseas shareholders with substantial voting power. Singapore Power and China’s State Grid Corporation, which control 51% of the company’s equity, also voted against three other major items (an increase to the Non-Executive Director remuneration cap, an issue of shares and the re-election of Mr Tony Iannello). There have been media reports of collusion in the interest of commercial gain, which ASIC is investigating.
Second Strikes
ASX 300 company Mortgage Choice, which has been struggling to keep pace with the market, received a second strike as shareholders protested the 100% STI award to former Chief Executive Michael Russell. The Board maintained that his pay was appropriate, with Chairman Peter Ritchie stating that the focus should be on Mr Russell’s total reward rather than the percentage of his bonus.
Contractor UGL also received a second strike, after 45% of shareholders voted against the Remuneration Report. The strike followed changes to new Chief Executive Ross Taylor’s remuneration contract that lowered performance hurdles (the TSR tranche has a shorter vesting period) and questions regarding the use of underlying EPS growth as a performance metric.
Both companies were able to avoid a Board spill; only 21%of UGL shareholders and 7% of Mortgage Choice shareholders were in favour of the resolution.
Initiatives in Avoiding a Second Strike
Many of the companies that received a strike in 2014 took the opportunity to improve elements of the remuneration framework, ultimately avoiding a second strike and minimising shareholder acrimony
Changes implemented by companies in the S&P/ASX 300 at 30 September 2015 (with a 20 day smoothing) that received a strike in 2014 but not in 2015 are set out in the table below.
