ASA Puts Boards on Notice

The Australian Shareholders’ Association has this week released a discussion paper that puts Directors firmly in the spotlight.

Board table

The ASA’s most common ground for voting against a director in the past has been excessive workload or remuneration; it stated its focus will now shift to performance, independence, tenure and fair treatment of retail investors in capital raisings.

The ASA’s discussion paper consists of 42 points of focus, covering a range of issues. The main concerns are summarised below under remuneration and corporate governance headings:




  • The CEO’s fixed salary should be no more than twice the next highest paid executive’s.
  • The fixed component of ASX 100 CEOs’ remuneration should be no more than 20 times the average Australian salary in that year.
  • Executives should have skin in the game: part of the salary can be paid in restricted shares.
  • Termination payments for CEOs should be limited to a maximum of six months fixed pay, unless six months’ notice is worked, when there should be no termination benefit.


  • At least 50% of total potential pay should be at risk for the CEO and they should have the largest proportion of their pay at risk compared to other company executives.
  • The ASA opposes STI payments, preferring LTI, but in any event the opportunity for KMPs other than the CEO should not exceed the executive’s base pay or long term incentive opportunity. The ASA’s suggested remuneration for KMP other than the CEO is 50% base, 20% STI, 30% LTI. The CEO should have a greater weighting towards LTI rather than STI.
  • A substantial portion of the STI should be based on “verifiable” financial performance metrics.
  • At least 50% of a CEO’s STI should be paid in equity, with a minimum two-year holding lock.
  • The performance period should be at least four years. The ASA does not oppose retesting of LTI hurdles if it serves to lengthen performance periods.
  • Companies should have multiple performance hurdles.
  • Relative TSR is the ASA’s preferred performance hurdle, but general market peer groups such as the ASX 200 are not acceptable; the ASA would prefer comparator companies from similar industries. Vesting schedules for relative TSR should start with 30% vesting at the 50.1th percentile, rising with a sliding scale of 2% to 100% at 85th percentile. There should be no out-performance bonuses if absolute TSR is negative over the performance period.
  • Other hurdles suggested by the ASA (depending on the company’s situation) include Earnings Per Share, Return on Assets, Return on Capital Employed, but not Return on Equity.
  • Dividends should not accrue on unvested shares.
  • In change of control situations, there should be no automatic full vesting of LTI schemes. The ASA prefers pro-rata vesting based on past rewards.
  • Market value is preferable to fair value to calculate the amount of equity granted for LTIs.
  • Loan schemes should not be non-recourse or interest free and should not be forgiven in the case of poor performance.


  • Chairs should be paid no more than three times a Director’s fee.
  • There should be reductions in cash fees (especially for Chairs) if the company has performed badly and Directors have not shared in the losses through “meaningful shareholdings”.
  • There should be no additional fees for committee memberships except for the committee Chair.
  • At least 20% of annual fees should be paid in shares bought on market until five years tenure when there should be one year’s cash fees in the company’s shares.
  • Fees and recommendations from remuneration advisors should be disclosed in the case of a fee pool increase or fee change.
  • There should be disclosure of non-cash benefits such as office, vehicle and permanent car park.
  • Ongoing remuneration issues will lead to ASA opposition to the re-election of the Remuneration Committee Chair.

Corporate governance

Chairs should:

  • Be an independent Director;
  • Serve on a Board for two years before being appointed as Chair;
  • Not serve for longer than 10 years as Chair;
  • Leave the Board completely after stepping down to give the new Chair free rein;
  • Not Chair the remuneration or audit committee;
  • Live in the city where the CEO resides and the company is based; and
  • Ensure they are not responsible for key decisions which lead to poor performance, or the ASA will consider opposing their re-election at the underperforming company as well as un-related companies.

Directors should:

  • In ASX 300 companies, number no less than five and no more than 11, with at least one being female;
  • Limit their service at the company to 12 years if they are to be considered independent;
  • Have no related party transactions with the company and no recent history as a service provider to the company;
  • Not serve on more than five separate and un-related public company Boards. The ASA counts a Chairmanship as equivalent to serving on two Boards;
  • Be prepared to display detailed information in their website profile and, in the case of re-election, in formal notices of meeting, including: professional background, age, date of appointment to Board, when last elected, city of residence, committee positions, all other Directorships held, past Directorships of ASX-listed companies and the size of any shareholding;
  • Provide CrimTrack and ITSA Bankruptcy checks along with a statutory declaration at the date of listing affirming that they have not been the subject of relevant disciplinary or enforcement action by an exchange or securities market regulator;
  • Disclose any adverse regulatory judgements to shareholders, as well as the proposed course of action;
  • Not have served on a Board of more than one poorly performing investment. Two will generally lead to ASA opposition to re-election; and
  • Disclose if they have a substantial personal margin loan against their shareholding.

CEOs should:

  • Voluntarily take part in the usual three-year Director election cycle;
  • When finishing up as CEO, not return to the Board unless there has been “superior performance” in which case they should wait out a cooling off period of two years to give the new CEO time to settle;
  • Be strictly limited to one un-related additional NED directorship, including pro-bono, not-for-profits, or public company Boards (Also exec KMP);
  • Not chair another un-related ASX-listed company (ASX 200 CEOs); and
  • Not serve as a voting member of Board committees (Also exec KMP).

Other areas the ASA has covered in its discussion paper encompass shareholder communications and meetings (including proxy voting), continuous disclosure, codes of conduct, division of Board and management duties, Board succession and reviews, gender diversity (and other diversity) policies, the structure of capital raisings, the roles and membership of committees and selection of committee Chairs, the rotation of auditors.

ASA Chair Ian Curry indicated that the ASA’s viewpoint might change based on submissions to the discussion paper, which are to be sent to before 10 September 2013, which many of you might recognise as the Tuesday after the election.