The Agenda – May 2017

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Deferral to be mandatory for Banks, APRA to receive power over remuneration policies

In the 2017 budget, the  government announced a new “Banking Executive Accountability Regime”. Some of the initiatives under this scheme will impact key management personnel significantly, affecting their privacy and remuneration.

Remuneration and governance news

Examples include:

  • Authorised deposit taking institutions will need to advise APRA before appointing senior executives and Directors. Upon appointment, they will need to be registered with APRA and details of their role and responsibilities provided.
  • A minimum of 40% of the variable remuneration for executives of authorised deposit taking institutions must be deferred for a minimum period of four years. This proportion rises to 60% for certain executives such as the CEO.
  • APRA will receive stronger powers to “review and adjust” the remuneration policies of authorised deposit taking institutions if APRA believes those policies are “producing inappropriate outcomes”.

The new rules are intended to make executives more accountable, subject them to more scrutiny and increase the consequences they face for not meeting expectations.

There is as yet little detail on the proposals.

Other Budget news

The government did not renew the high-income earner deficit levy (an additional 2% tax for individuals earning over $180,000), which is due to expire in July 2017. Labor has however indicated that it would reinstate the levy if it came into power.

The government also announced that it wants to increase the Medicare levy paid by almost all workers by half a percentage point to 2.5 per cent of taxable income from 1 July 2019 to provide long-term funding for the National Disability Insurance Scheme.

The government has also provided an exemption to the work test and $100,000 non-concessional cap for over 65s who sell their home. If a couple sells their house to downsize, they will be able to contribute $300,000 each to superannuation.

Egan Associates’ new service Workforce & Governance features in HRD Magazine

Egan Associates has released a new cloud service called Workforce & Governance, which allows HR teams to easily create position descriptions, evaluate jobs and analyse pay.

Our primary point of contact for this service is Paul Adams. He was featured this month in HRD Magazine, writing about the many manual processes that contribute to unfair pay decisions. A copy of his commentary can be found here.

WA Public Servants to have salary docked if KPIs not met

The new West Australian Premier Mark McGowan has said that 20% of the salaries of directors-general and department chief executives will be contingent on 20 new “whole-of-government” KPIs. The government will not be adopting similar measures for its ministers.

These KPIs are yet to be developed by a review panel, but they are whole of government because they are intended to ensure better integration in the delivery of services across multiple government agencies.

The final KPIs will be determined by Cabinet, with potential KPIs including:

  • The reduction of family and domestic violence
  • A reduction in the rate of type 2 diabetes.

“We are keen to ensure the senior people in government have the same obligations on them as other areas of the economy, and that means pay is tied to performance,” McGowan reportedly said. “As far as I’m aware, this hasn’t been done in this country before.”

Liberal leader Mike Nahan has voiced disapproval of the plan, noting that achievement of KPIs will depend on policies for which the ministers and not the public servants are responsible.

It is interesting that the plan talks of “20% of salaries” being linked to the KPIs rather than additional funds being available for meeting KPIs. Psychologically, this approach could be more powerful as the fear of loss can be a stronger motivator than hope of a gain.

Director Identifications

Labor has announced that it intends to introduce identification numbers for Directors to stop the practice of phoenixing.

Phoenixing is where Directors strip the assets of a company just before it goes broke and then use those assets to start a new company with a different name. Often the Director name will be fake or changed to be slightly different, making it difficult for the regulator to identify phoenix activity.

The idea behind a Director Identification Number is that it would make it easier for ASIC to track Directors and their companies. To receive a number, Directors would have to undergo a 100-point ID check.

Anti-bullying claims

When the anti-bullying laws were introduced, the AICD noted that it was unclear whether non-executive Directors would be covered. Now a Fair Work Commission case has provided a precedent for Directors or Chairmen to seek anti-bullying orders against each other.

The former Chairman of the governing Board of aboriginal lands in South Australia brought claims of bullying against the general manager and deputy chairman, claiming the pair were refusing to deal with him, disrespecting his wishes, stopping him from accessing minutes and defaming him.

The Commissioner considered calls to throw the case out because the Chairman was not classified as a worker under the Act but ultimately decided that the Act adopted a “very wide” definition of a worker so that all that was needed was “the undertaking of work for a person conducting a business or undertaking”.

US CEOs see minimal pay rises, long term incentives dominate

Salary and bonus increases were rare in 2016, according to Korn Ferry Hay Group’s Annual CEO Compensation study including data for the 300 largest US public companies with revenues of at least US$9 billion.

Total remuneration increased by 4.2% to US$12.5 million, however annual cash remuneration was flat, with base salary recording salary growth of 0.8% and bonus payments remaining flat.

It was in equity grants that CEOs saw growth, with long term incentives experiencing growth of 4.4% to US$8.8 million. Equity awards rose at 4.2%. Performance awards accounted for 54.7% of equity awards, followed by restricted shares at 22.7% and options at 22.6%.

Dodd Frank executive remuneration law repeal heads to the House of Representatives

A US Bill that would repeal many executive remuneration sections of the Dodd Frank Financial Reform Act is heading to the US House of Representatives for consideration.

Changes under consideration include:

  • Mandatory CEO pay ratio disclosure to be repealed.
  • Say on pay votes only to occur in years where changes have been made to an executive’s compensation instead of every three years.
  • Repeal of proposed mandatory disclosure of policies prohibiting executives and employees from hedging company equities.
  • Impact of clawback rules to be reduced by only mandating the clawback of executive remuneration in the case of an accounting revision if the executive had control or authority over the relevant financial report.

It is unclear at this point whether the Bill will pass the Senate, even if it makes it through the House.

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