The Agenda – May

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International law changes and developments

  • The National Law Review has published a concise and useful list containing the executive remuneration rules that were described in the Dodd Frank laws and their current status.

  • The US Department of Labor (DOL) has released its final rule revising the nation’s overtime rules. The exempt salary threshold level will increase from US$455 per week, or US$23,660 per year, to US$913 per week, or US$47,476 annually. Employees paid less than US$47,476 will be entitled to overtime pay on any work beyond 40 hours per week.

Gender pay

  • An article in The Washington Post has analysed the link between gender, race and pay using US Government survey data from 60,000 households. It notes that earnings by gender and race were as follows:

    • Asian men ($1,080)
    • White men ($897)
    • Asian women ($841)
    • White women ($734)
    • African-american men ($680)
    • Hispanic men ($616)
    • African-american women ($611)
    • Hispanic women ($548)

    The article points out that in all cases within race it is apparent that women are earning less than men. For example, despite the fact that Asian women are approaching white men in terms of pay, they still lag well behind Asian men.

  • Pew Research Center, a US organisation, has detailed some of the key facts about the gender pay gap in an article regarding Equal Pay Day, which is a date symbolising how far into the New Year the average American woman would have to work to earn what the average American male did the previous year.The organisation points out that full time working women in the US earn 77% of what their male counterparts earn, which means that women have to work approximately 60 extra days to earn what men did the previous year.

    It also notes that the gap has narrowed from 36 cents in 1980 to 16 cents today, however persists for the following reasons:

    • Women continue to work in lower paying occupations;
    • Women are more likely to experience career interruptions than men; and
    • Women are about twice as likely as men to say they had been discriminated against at work due to their gender.

Salary surveys and analysis

  • The latest New Zealand Herald survey of executive pay has revealed that average remuneration received by top New Zealand listed companies increased by 12% in 2015, to NZ$1.68 million. The highest paid executive was Fonterra CEO Theo Spierlings at NZ$4.94 million while the CEO of ANZ New Zealand David Hisco came in at second place, receiving NZ$4.18 million. This represented a drop of 2.3% for Hisco, who was the highest paid CEO in 2013 and 2014. Overall remuneration increases were predominantly due to bonuses, which reflect performance as opposed to base pay where increases are usually correlated with inflation.

    There was a lack of women in this year’s pay survey as all of the highest paid executives were men. YWCA Auckland chief executive Monica Briggs says that the same problems that contribute to the gender pay gap are also causing a lack of female CEOs in New Zealand.

    “Businesses who talked to us revealed unexplained pay gaps linked to some of their highest performing female staff. Yet they only discovered this once they took a harder look at the problem and ran the data”, she said.

  • US CEOs of S&P 500 companies made US$12.4 million on average last year, down from $13.5 million in 2014, a union study has found. The figures are issued annually by the AFL-CIO, the largest US federation of labor unions. An AFL-CIO spokeswoman said the lower average CEO compensation figure reflected that for many, the present value of future pension benefits declined. Union leaders have commented that the figures show how pay decisions do not favour the average worker, who made around US$36,900 last year, up from around US$36,000 in 2014.

  • Research by the Australasian Legal Practice Management Association (ALPMA), supported by the Empire Group, reveals that 45% of law firms are expecting pay rises to be above the rate of CPI this year, with a further 32% planning increases in line with CPI. The largest pay increases are expected to be awarded in Victoria, where 58% of firms surveyed stated that pay rises would exceed inflation. In contrast, the smallest increases are likely to be awarded in South Australia where only 21% of firms expect pay increases to exceed CPI.

  • US association WorldatWork has explored the impact of activists on executive compensation programs by analysing changes a year after an activist investor was elected to the board. WorldatWork reports that since 2013:

    • 35% of companies made changes to both annual and long term incentive plan design;
    • 20% of companies made changes only to the long term incentive plan design; and
    • 15% of companies only changed the annual incentive plan design.

    The activist investor was more inclined to push for bottom line metrics that they believed would drive shareholder value as well as increase stock price, and preferred quantitative metrics as opposed to a reliance on qualitative individual performance.

    There was also a shift in the long term incentive plan mix; in particular, activist investors preferred a shift from time based restricted stock to performance based long term incentives in the form of stock options or a performance based long term incentive plan with leverage.

Federal Budget – Key Measures

The 2016-17 Budget was handed down on Tuesday 3 May. The key initiatives, most of which relate to superannuation, are as follows:

Superannuation

  • $1.6 million transfer balance cap

    • The Government plans to introduce a $1.6 million cap on the total amount of superannuation savings that can be transferred from a concessionally taxed accumulation account to a tax free retirement account.
    • Superannuation savings in excess of the cap can remain in a superannuation accumulation account, where they will be taxed at 15%.
    • Those individuals already in retirement as at 1 July 2017 with balances in excess of $1.6 million will need to either transfer the excess back into an accumulation superannuation account or withdraw the excess amount from their superannuation.

  • $500,000 lifetime cap on non-concessional contributions

    • The lifetime cap includes all after-tax contributions made on or after 1 July 2017, from which time the ATO has reliable contributions records.
    • People who exceed the cap will be notified by the ATO, where they will be asked to withdraw the amount contributed above the $500,000 cap, along with any associated earning.
    • However, if an individual has exceeded the cap prior to commencement, they will have used up their lifetime cap but will not be required to withdraw the excess.

  • Removal of 10% rule for deductible personal contributions

    The Government will extend the ability for those who are self-employed to claim tax deductions for personal superannuation contributions, which is currently restricted by the 10% rule.

  • Expanding spousal contributions

    The Government plans to increase access to the low income spouse superannuation tax offset by increasing the income threshold for the low income spouse from $10,800 to $37,000.

  • Reduction in Division 293 threshold

    Currently, anyone earning an adjustable taxable income of more than $300,000 pays an extra 15% tax on concessional super contributions. The Government intends to reduce the income threshold to $250,000 for imposing the extra contributions tax.

  • Extending tax exemptions on earnings

    From 1 July 2017, the tax exemptions on earnings in the retirement phase of superannuation will be extended to products such as deferred lifetime annuities and group-self annuitisation products

  • Work Test

    The work test for those aged 65 to 74 will be abolished from 1 July 2017. Currently, to be eligible to make contributions to super, if you are aged 65 to 74, you must have worked for at least 40 hours over 30 consecutive days in the financial year you wish to make the contribution.

  • Catch up contributions

    From 1 July 2017 any unused portions of the annual $25,000 concessional cap can be carried forward on a rolling basis for a period of five consecutive years.

Personal tax rates

  • Budget deficit levy

    The Treasurer previously indicated that the 2% Temporary Budget Repair Levy on incomes over $180,000 will not be extended beyond its initial three years, which means it will cease at the end of the 2016-17 financial year.

  • Increasing the middle income tax bracket

    The Government will increase the middle tax bracket threshold from $80,000 to $87,000. This means that taxpayers will now pay 32.5 cents for each $1 over $37,000 until they earn $87,000 or more. Currently each $1 between $80,000 and $180,000 is taxed at 37 cents.

Employment

  • Youth jobs

    Employers will receive $1,000 upfront to hosting job seekers under the age of 25, with the intern receiving a $200 fortnightly payment on top of their income support. Employers can also receive a Youth Bonus wage subsidy of up to $10,000 for hiring those job seekers with barriers to employment and will receive up to $6,500 for hiring the most job ready job seekers.

Research and studies

  • On 28 April the Federal Government released its “Unlocking Potential” report into its workforce management contestability completed by Fairfax board member Sandra McPhee. The report was commissioned to examine current practices around recruitment, employee mobility and separations, specifically in the context of contestability. It made a number of recommendations in the areas of talent management, including:

    • reforming human resources (such as increasing outsourcing for transactional tasks and thereby reducing headcount).
    • increasing role flexibility (including implementing measures to allow more temporary employment and pushing for culture change so that “separation” from the service is not seen as negative); and
    • changing hiring practices(including overhauling the APS classification system and removing unnecessary processes in hiring and promotion to better enable merit); and
    • improving talent management by making it a key accountability for department secretaries and routine for high-level executives).

  • A survey conducted by Accenture Strategy has found that 73% of business leaders and employees believe that performance management needs to change, and 77% believe that customising performance management practices (for example, in terms of coaching, feedback, goal-setting and types of rewards) to individuals and groups is mandatory to meet the needs of the workforce of the future. However, only 34% stated that their organisation has moved away from a standardised approach. Other key findings from the survey include:

    • 66% of respondents believe that the use of ratings creates a negative experience for everyone except the few at the top.
    • 63% of leaders that use forced rankings believe eliminating them would simplify performance management.
    • 92% of leaders and 89% of employees stated, however, that traditional rankings and ratings should have some role in determining rewards.
    • 79% of leaders and 69% of employees believe that making performance management transparent is expected and even required.
    • 78% of leaders and 64% of employees believe performance tracking technologies will change the future of performance management for the better.

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