Remuneration Report Strikes – 2016 Round-up

2016 has been the year of the high-profile strike, with the list of companies receiving an adverse remuneration report vote reading like a who’s who of corporate Australia.

A summary of key reasons companies received strikes in 2016 is detailed in the infographic below, followed by a discussion of each company’s situation.

Reasons for 2016 remuneration report strikes

Strikes this year among the top 300 companies by market capitalisation

  • Commonwealth Bank of Australia – Voters’ concerns included that hurdles for performance pay were inadequately explained and were unable to be objectively measured. (The Bank had decided to make 50% of the LTI vest on non-financial cultural measures.) Most investors and proxy advisors prefer that hurdles are based on financial rather than non-financial conditions. However, APRA, ASIC and some investors believe that the use of some non-financial incentives are necessary to ensure ethical behaviour, with the caveat that they must be transparent. For more information, see our article on including non-financial metrics in performance pay without incurring a voting backlash.

    The Bank decided to retract its resolution to approve a LTI grant to the CEO Ian Narev, instead stating its intention to make a grant with the same performance conditions as the prior year.

  • CSL – One concern of voters was the quantum of CEO Paul Perrault’s pay, especially in comparison to former CEO Brian McNamee. Other concerns included grants of equity without performance hurdles and the effect of buybacks on TSR performance conditions. Some voters also questioned CSL’s decision to shift to an US-style remuneration strategy, a move CSL has defended due to the global nature of the company.

    “As a global organisation with operations in more than 30 countries, CSL is somewhat unique within the ASX top 10 as to the truly global nature of our operations. Over 90% of our revenue and profit is derived outside of Australia … In the past, our remuneration practices have been based on a long-standing Australian model, with progressive, independently benchmarked modifications made over time to accommodate overseas market practices. This is not sustainable for our business into the future,” CSL Chairman Professor John Shine said at the meeting.

  • Woodside (April 2016 for the 2015 Financial Year) – There were concerns with the level of incentive payments made after the company reported a profit decline arising from low oil prices and writedowns. The Board believed management had performed strongly in comparison to peers labouring under the same market conditions.
  • Goodman Group – There were issues with the overall quantum of executive remuneration, bolstered by the size of long term incentive grants. The value of these grants is relatively high in part because Goodman Group uses fair value to allocate equity under its incentive plans. in order to avoid further controversy, the company chose to buy shares on market to make their LTI plan awards, and as a result were not obliged to seek shareholder approval. Notwithstanding, proxy advisors and investors expect them to seek shareholder approval.
  • AGL – AGL made a statutory loss in FY 2016, yet because the company calculated its bonus awards based on underlying profit (which excluded significant impairments) its executives received STI awards that were between target and maximum. There was also reportedly concern about the proportion of the bonus that was dependent on non-financial targets.
  • Boral – Boral faced criticism of one-off retention payments, which it decided to grant after losing two executives to competitors and discovering attempts to poach others. Two other areas of potential concern were CEO Mike Kane’s non-monetary benefits, the company’s use of EBIT before significant items as a performance condition in its bonus plan, and its use of fair value rather than face value for the allocation of LTI equity. Boral’s Remuneration Committee chair Kathryn Fagg admitted that the latter is controversial and noted that Boral now disclosed both the fair and face value of grants. She further stated that after feedback the company may move to allocating equity using face value in 2017.
  • Bellamy’s – The key concern behind the strike was stated to be the poor disclosure of STI and LTI performance conditions, although there was also some concern about fixed remuneration increases. In a statement, Bellamy’s highlighted that it was one of Australia’s fastest growing companies in 2016. It also stated that three out of the four proxy advisors recommended voting for the Remuneration Report.
  • Spotless – Proxy advisors were concerned about the quantum of CEO remuneration and increases to the CEO’s maximum bonus. The bonus awarded for 2016 was considered too high given performance. There were also concerns about alterations made to LTI grants and performance conditions to reflect a trading update and decline in share price over the year.
  • Spark Infrastucture Group (May 2016 for the 2015 year) – Like SPAusnet, which incurred a strike during 2015 (see below), Spark Infrastructure’s strike may not have been predominately due to remuneration concerns. There was a significant amount of activist activity, as outsiders sought to stop the company taking a stake in Transgrid.
  • Carsales – Carsales only narrowly missed a strike in 2015. Although the company subsequently conducted a remuneration review with an external consultant, this year more than 50% of voting shares protested the company’s remuneration. Concerns included significant increases to fixed remuneration, scant disclosure of performance hurdles and the use of fair value to allocate long term incentive grants.
  • Mineral Resources – The company said proxy advisors were concerned he long term incentive was only based on one measure – return on invested capital (ROIC). They also believed the ROIC target had been set too low and did not support that it was based on normalised net profit after tax excluding impairments. STI disclosure was also considered inadequate. The company’s KMP were not pleased with proxy advisor views, but the Board intends to engage with stakeholders and do what it can to address concerns without changing the remuneration structure.
  • Cover-More – Cover More suffered a resounding strike, with over 70% of votes against the resolution. The company stated that multiple proxy advisors recommended a vote against the remuneration report with varying reasons. Some suggested Cover-More implement a second performance hurdle for its LTI plan. Others queried the quantum of the CEO’s pay and sign on payments he received. The failure to disclose the intention to move to a balanced scorecard in 2016 for annual incentives was also a problem.  The company flagged a remuneration review in 2017.
  • UGL (third strike) – Major fund manager Allan Gray (which owns 19%) reportedly had issues with the CEO’s package. Allan Gray’s CEO stated that the remuneration scheme was not well designed and was open to being gamed. UGL was also in the midst of a takeover offer from CIMIC, which owned just over 13% of UGL’s shares at the time.

Close calls (>20% against)

  • South32
  • Tatts
  • Tabcorp
  • Nine Entertainment
  • Orocobre
  • BWX Limited
  • Dicker Data (May 2016 for 2015 year)

Protest votes (> 15% against)

  • Crown
  • CIMIC (April 2016 for 2015 Year)
  • TPG
  • Australian Foundation Investment Company
  • Bapcor
  • IDP Education
  • Myer
  • Galaxy Resources (May 2016 for 2015 year)
  • Village Roadshow
  • Impedimed
  • EQT Holdings
  • FAR Limited (May 2016 for 2015 year)

Boards criticise investors and proxy advisors

The 2016 year has also seen Board Directors speak out on the vagaries of voters’ intentions and against proxy advisors, concerned that such organisations do not have sufficient expertise or give enough consideration to circumstances to be able to make judgements on individual companies’ executive remuneration.

It is interesting to note that proxy advisors in turn have concerns about the level of Directors’ expertise in remuneration matters.

Egan Associates observes that no one makes the right decision at all times, but notes that proxy advisors and institutional investors often highlight issues with executive and Board pay that Directors would do well to consider.

Comments from Directors have included:

Outgoing Commonwealth Bank Chairman David Turner

“There’s variability among proxy advisers as well as to how deeply they consider the points and how far ahead they look,” Turner told the Australian Financial Review.

“I think it important that they treat each company on its merits and that if we do something it’s not necessarily going to be indicative of what the entire industry does, that it’s actually us that’s doing it.”

Woodside Chairman Michael Cheney

“I have to say it is a real challenge trying to come up with a remuneration structure that satisfies all shareholders. Some shareholders are passionately in favour of some elements of the system and others passionately against the same elements. Last year our Remuneration Report – and thus remuneration structure – was overwhelmingly supported. This year a quarter of those same shareholders are voting against a remuneration structure which hasn’t changed,” Cheney told the AGM.

Mineral Resources Managing Director Chris Ellison

“The system that is running at the moment will prove to be flawed, there is no question about that,” he told the Australian Financial Review.

“These [proxy] companies that are out there make the recommendations, send them along to the instos and the instos are too lazy to do their job [and] they just tick a box … anyone that is out there that is not properly managing their portfolio, they are not understanding exactly what we are doing, they are blindly voting no – get off our register. We don’t want you.”

Chairman Peter Wade echoed the sentiment. “If the companies think our board is inappropriate or remuneration is inappropriate they don’t need to be investing in us, they should go and invest in someone who they believe meets that criteria,” he said.

South 32 Chairman David Crawford

Crawford reportedly told AGM attendees that there were inaccuracies in an ISS proxy advisor report recommending a no vote on the company’s remuneration report.

“I am concerned that as a body that puts out a report with their views on what should be supported and what should not be supported, [the recommendations] should not be based on factually incorrect information,” he reportedly said.

Goodman Group Chairman Ian Ferrier

“What happens is that the proxy advisors don’t come and engage with the board. We never hear from them, they have never rung me,” Ferrier reportedly said at the AGM. He continued to state that while institutional investors often agreed with Boards, they were influenced by proxy advisors.

“I imagine, and my view is, in some way they abrogate their personal view to the advisors,” Mr Ferrier said. “I think the proxy advisors have made errors in their judgement.”

Chief executive of the Australian Institute of Company Directors John Brogden

Brogden reportedly told the Australian Financial Review that mixed messages from different parties were confusing and frustrating Boards.

“You need look no further than the parliamentary inquiry into the banks where there are very clear expectations of good corporate culture as well as good results,” he said. “Proxy advisors who say it is only about financial results are out of touch. We want a better level of education and understanding than that from proxy advisers.

“Sometimes I think these guys sit in the cheap seats and throw out criticism without really understanding what is needed for a successful corporation. It is more than just dollars, it’s corporate culture, it’s customer satisfaction, innovation, investment in the future, there are any number of different things and the risk of relying on the financial numbers alone is you drive a very short-term culture, you are only really concerned about the next 12 months, not the next 12 years.”

As Egan Associates suggested in our last newsletter, a potential solution to these concerns could be requiring proxy advisors to present credentials, to demonstrate their expertise and ability to make judgements on remuneration.

Actions from Companies that received a strike last year

The year after a strike, companies must respond to any remuneration related issues that are raised in the AGM. The following figure provides a summary of changes taken by companies following 2015 remuneration strikes.
Actions taken following 2015 remuneration report strikes

More details on the changes companies have outlined in response to adverse votes are below.

AusNet Services

The strike against Ausnet’s remuneration report may have had little to do with the remuneration report. It occurred as two major shareholders voted against four resolutions including voting independent Director Tony Iannello off the Board. Media reports believed the motivation of this voting was to stymie Ausnet’s ability to bid for NSW power asset Transgrid and thereby improve their own chances of a successful tilt.

Ausnet Services has since shed its triple-stapled structure for a streamlined new company – the Chairman of the remuneration committee stated in the 2016 remuneration report that due to this change, the company considers the 2015 strike to be irrelevant. It did not include a Board Spill motion in its notice of meeting against the possibility of a second strike.

It did, however, engage with shareholders and changed its disclosure, with additions to the remuneration report including:

  • A letter from the remuneration committee chair,
  • A summary table that discloses fixed remuneration, bonuses and LTI outcomes for the year,
  • A table linking strategy and company performance to pay outcomes for the year
  • Traffic light disclosure and commentary to demonstrate how executives performed against their short term incentive KPIs
  • The addition of a remuneration governance section

Although remuneration in the 2016 year was significantly higher than in the 2015 year, the company explained that the uplift was due to improved performance. The company did not receive a second strike and an increase in the NED fee pool that failed at last year’s AGM was also passed.


Ansell reviewed its remuneration structures following its 2015 strike and undertook these actions:

  • Redesigned its remuneration report for readability
  • Explained that the CEO had not received a large increase on a constant currency basis, but rather only appeared to have done so due to depreciation of the Australian dollar
  • Deferred a proportion of the annual bonus into restricted shares for two years – the amount of each award that is deferred will depend on how well executives perform, with maximum deferral (50% of the award) occurring at stretch performance.
  • Changed the way STI and LTI vest – Previously once a certain level of performance was reached, 25% – 50% of the incentive would be awarded. Now the incentives vest in a straight line between zero and maximum award. The maximum potential award under both STI and LTI were also adjusted, down for all executives except the CFO, who received an increase in potential award.
  • Instead of providing LTI either in cash or performance rights depending on where the executive was based, all LTIs will now be awarded as equity.
  • Added ROCE and Organic Revenue hurdles to the LTI plan (which previously only had an EPS hurdle). Ansell decided not to use relative TSR because it considered there was no viable group of comparator companies. It also changed its ROE gateway to a ROCE gateway to reflect the company’s reliance on both equity and debt to fund investments.
  • Decided to test performance measures on a constant currency basis.
  • Developed a detailed policy on the Board’s exercise of discretion.

ALS Limited

ALS Directors sought feedback from external stakeholders and made a number of changes to its remuneration strategy including:

  • Replacing a relative TSR hurdle with a ROCE hurdle
  • Introducing a financial performance gateway into the STI Plan requiring financial KPIs to be met before personal or non-financial KPIs yield a payment
  • Introducing a debtor days KPI into the STI plan to help manage cash flow

Premier Investments

Premier Investments’ actions included:

  • Providing more detailed disclosure on its remuneration arrangements in its 2016 annual report than in its 2015 annual report. In its Chairman’s letter, it noted the increase in market capitalisation and total shareholder return since the appointment of CEO Mark McInnes, whose bonus payment had triggered a strike at the 2015 AGM.
  • Removing retesting from its LTI plan and allocating the number of performance rights to be granted based on face value rather than fair value.
  • Reviewing Mark McInnes’ remuneration arrangements.

Downer EDI

Downer EDI considered the feedback from stakeholders after the strike and conducted a remuneration review, but decided that the following actions were appropriate:

  • A questioned retention payment,
  • The level of the managing director’s fixed remuneration,
  • The decision not to disclose financial STI and LTI targets due to commercial sensitivity, and
  • The use of a broad peer group (ASX 100 excluding financials) rather than a selected group of peers.


Like Premier Investments, Webjet has improved its disclosure significantly. It also addressed criticism of its remuneration with data on how the company has developed over recent years, becoming more global and increasing in scale significantly.

After conducting a review of its remuneration, it determined that it would adopt a remuneration structure that would increase the proportion of at risk remuneration for its executives and decided to:

  • Freeze fixed annual remuneration for three years
  • Increase the potential short term incentive, which will be mainly dependent on EBITDA performance (and relative TSR for the managing director)
  • Introduce of an equity based long term incentive plan with a relative TSR hurdle.

ALE Property Group

ALE Property took no action in response to the 2015 strike against its remuneration report. It noted that the no vote was due to its major securityholder, which failed to express remuneration related concerns in subsequent discussions. It stated that no negative comments had been received regarding remuneration over the last three years and the adverse votes in the three years prior to 2015 were less than 3%.

Village Roadshow

The Board implemented the following changes:

  • Reducing base remuneration by almost $1 million for the Co CEOs/Co Chairmen
  • Retracting the CEOs’ contractual ability to seek a loan from the company of up to $2 million
  • More than doubling the maximum STI opportunity and introducing a clawback policy for restated financial results
  • Introducing a relative TSR hurdle for its loan share plan, with no awards to vest unless absolute TSR is positive.


In response to its 2015 strike, Impedimed:

  • Redesigned its remuneration report
  • Provided more information on the comparator group used to justify a 7% increase in CEO fixed remuneration
  • Explained that the two six-month STI performance periods seen in 2015 were temporary and a 12-month performance period would be utilised going forward
  • Changed the vesting schedule for long-term incentive options, which will now vest annually over a four-year period rather than monthly.
  • Increased the proportion of at risk remuneration
  • Introduced a clawback policy and a minimum shareholding requirement for NEDs and executives.


Cardno explained that its 2015 remuneration report strike was predominantly due to the votes of its then largest shareholder Crescent Capital Partners. Crescent found that the remuneration strategy had delivered poor financial performance and unstable senior management. It also believed that the Board had failed to focus the CEO and KMP on addressing underlying issues with the business.

Changes the company made to its remuneration strategy included:

  1. The introduction of a balanced scorecard approach to bonus payments, with performance targets primarily based on financial measures.
  2. Instead of TSR and EPS performance conditions for the long term incentive, Cardno has introduced EBITDA and share price targets. These hurdles are expected to remain in place until the company’s performance improves.


Bradken claimed that it had not received specific feedback on the remuneration issues that led to its 2015 remuneration report strike. However, the Chairman and Non Executive Directors accepted a voluntary reduction in their fees in 2016 (28.5% for the Chairman and 15% for the NEDs). The base salary of the new CEO is also only around two thirds of that of the former CEO. The company has also attempted to improve its disclosure.


UGL made the following changes:

  • Altered its EPS LTI hurdle, implementing higher targets and determining that statutory rather than underlying EPS would be used to calculate vesting.
  • Reintroduced a three year LTI performance period
  • Introduced a gateway such that equity subject to the LTI’s TSR measure will only vest if absolute TSR is positive.
  • Extended the STI scorecard approach to all participants.

The changes did not lead to UGL avoiding another strike in 2016.

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