EA News Round-up

News round-up

The ASX is currently considering public submissions on changes to its listing rules proposed last year. It has deferred the originally planned start date of 1 January for some, including the introduction of a new rule requiring the disclosure of on-market purchases of securities under an employee incentive scheme on behalf of employees, Directors or their related parties. Our write-up of that proposed change (published in our September Newsletter) is here.

Directly after the New Year, Allan Gray managing director Simon Marais opined in the Australian Financial Review that CEO salaries should be based on corporate performance over ten years, as it takes that long to know whether the decisions pay off or not.

Naturally, the longer the performance period (or deferral period for equity-based short term incentives) the more skin an executive has in the game and the more aligned their interests will be with those of shareholders.

However, as the Australian Council of Superannuation Investors chief executive Gordon Hagart noted in the article, such incentive plans could cause problems when appointing CEOs due to the short average CEO tenure (five years or less).

As we’ve indicated previously, it’s best to tailor an incentive performance period length to a specific setting, as each entity will have its own natural performance cycle.

Other news around the world:


Consultation continues in the US around the SEC’s proposed rule (which we reported in our October newsletter) requiring companies to calculate the ratio between the CEO’s total annual remuneration and the pay of a median worker at the company.

Unsurprisingly, there has been a significant amount of comment already around the rule. Organisations contend it will be too labour intensive to calculate the ratio and of little to no use to shareholders. Some specific concerns include:

  • The intended inclusion of non-US employees in the ratio would be difficult and remove any meaning from the ratio.
  • If pension values are included in total annual reward they will be hard to calculate and will fluctuate significantly from year to year.
  • If a time is set for the disclosure of the ratio such as when the “10K proxy” is filed, there might be personnel bottlenecks at an already busy time. This could delay 10K filings.
  • Any mandatory long-winded disclosure of methodology or methodology changes would also negate the benefits of the ratio’s simplicity.
  • It would take time for companies to adjust to the new rule, with commentators suggesting a lenient, long transition.

More details about the proposed rule can be found here.

The US Senate also passed the country’s “budget deal”, including a clause that lowers the amount the government will pay for executive contractors from $950,000 to $487,000.

After the US research we reported in November on the CEO investment cycle, another paper on CEO tenure has been released. It concludes that the longer the CEO tenure, the less engaged CEOs become with customers, relying more on internal sources of information. Although this improves employee relations, it provides an imperfect view of the external market. This weakens customer relations and affects firm performance. Therefore, there is a linear positive relationship between CEO tenure and employee relations, but a U-shaped relationship between CEO tenure and customer relations.


The Canadian Centre for Policy Alternatives conducted research on the ratio between the pay of the country’s top 100 earners and that of an average worker. The Centre concluded that today’s CEOs earn 171 times more than the average worker. For comparison, in 1998 they earned 105 times more.

The Canadian Minister for Industry has launched a public consultation on Canada’s Corporation Act to identify ways to improve corporate governance in areas including executive remuneration disclosure, Board accountability and Board diversity.


A French court has approved a new version of the government’s controversial “millionaire tax” designed to tax high earners (those earning over €1 million) at a rate of 75%.

The court had said that 66% was the legal maximum for individual tax, leading the government to levy the tax on wages above €1 million on the company instead. The most vocal organisations about the approval have been the football clubs, who are worried about losing their best players.

In other French news, after negotiations broke down at a Goodyear tyre factory scheduled to close, the employees kidnapped senior executives. They threatened to hold them until the 1200 workers set to lose their jobs received higher payouts. The executives were set free after police became involved. A US executive suffered similar treatment mid last year in China.


The UK is still coping with the community backlash after a media report highlighted the remuneration of certain charity executives. The furore resulted in Public Administration Committee hearings on Charity CEO pay, which continued through December. Since the report was released, some donors have reportedly switched their donations to other organisations, and an enormous amount of commentary has surfaced about appropriate pay for not-for-profit executives. The Association of Chief Executives of Voluntary Organisations has released a “good pay guide” to help charities weather the storm via reasonable pay practices.


On 20 November final ordinance was approved in Switzerland implementing the Switzerland Minder Initiative proposals (voted on in the March 2013 referendum including a binding say on pay vote, bans on severance pay, annual voting for Directors). The ordinance came into force on 1 January 2014. Some of the new requirements are to be enforced from the first AGM and others by the second AGM. More details can be found here.