The Agenda – September 2017

In this month’s agenda, we address a breadth of issues which have arisen from research and/or have received Media attention.  They include recent comment on modest wages growth, improved gender balance on Boards, comment on whether the nation’s workforce and millennials are being prepared for significant technological change and transformation in the work place.

 

 Cultural Diversity

Research conducted last year by the Human Rights Commission, Leading for Change: A blueprint for cultural diversity and inclusive leadership, found that in corporate Australia, the ranks of senior leaders remain overwhelmingly dominated by those of Anglo-Celtic background.

Among the 201 chief executives of ASX 200 companies, 77 per cent had an Anglo-Celtic background and 18 per cent had a European background. Only 10 chief executives – or 5 per cent – had a non-European background, and none had an Indigenous background. The report referred to above shows more is needed in this regard.

 

Wages Growth – Pressure on Productivity Commission to support workers’ wages

The Productivity Commission could be asked to lead arrangements between business and government to deregulate sectors of the economy in exchange for employers paying workers higher wages.

The latest official data showed private sector wages growth rose by 1.8% in the year to June 2017, lagging inflation for a third straight quarter.  The Commission’s task is to look for ways to increase wages without destroying economic competitiveness. Recent figures published by the Australian Bureau of Statistics confirmed that the only real source of wages growth at present is coming from sectors in which governments set prices, led by healthcare, education and the public service more broadly.

Government sector incomes rose 2.4 per cent over the year, helping keep the annual rate from falling below 1.9 per cent. Overall wages growth slowed in the June quarter to 0.5 per cent from the previous three months, when it rose 0.6 per cent.

 

Wages across the States – SEEK data

According to jobs website Seek, growth in average advertised salaries remained fairly weak in the year to June, although there are signs that recent strength in hiring levels is leading to a pickup in wage pressures.  Over the year, the average advertised annual salary on SEEK rose to $81,747, up 1.8% on a year earlier.

Kendra Banks, a spokesperson at Seek said: “During the past financial year, advertised salaries on SEEK were relatively flat, with little to no growth, but in June this year salaries started to tick higher after dipping in May. This improvement is very encouraging, especially since salaries fell sharply in 2012 to early 2014″.  It was noted that much of the decline during this period was driven by falling salary levels in Australia’s mining sector.

Western Australia, the Northern Territory, South Australia and Queensland — Australia’s mining states and territories — all saw average advertised salaries increase faster than the national average over the last financial year, mirroring a strong rebound in commodity prices over the same period.

In New South Wales — Australia’s most populous state — average advertised salary rates rose by just 1.2% over the year. Canberra, home to the nation’s highest average salary levels, also only grew by 1.1%.

It is noted that both NSW and the ACT have unemployment rates significantly lower than other regions.

According to economists at the National Australia Bank, “New South Wales is arguably already close to full employment, with an unemployment rate of 4.8% … Investors should therefore be watching developments in the state first for evidence as to the extent of any cyclical improvement in wage growth in the coming years.”

 

Gender Equality

Recent statistics released by the AICD reveal that the percentage of female Directors across the ASX 200 has risen dramatically since 2009 when it stood at 8.3%.  In their most recent quarterly report (Gender Diversity Progress) it shows that at the end of August 2017 there were 25.4% female Directors across ASX 200 Boards, only marginally above that achieved at the end of the 2016 calendar year (25.3%).  We note that the AICD Chairman, Elizabeth Proust AO, recently stated that “considering the business case for diversity the fact that there are still 11 ASX 200 Boards with no women on their Boards is astounding.”  The good news, however, is that number has halved down from 22 Boards without any women this time last year.

The numbers suggest the glass ceiling is still in place in Australia. Companies with the largest market capitalisation have the highest proportion of female Board members.

In the UK:

In the Davies Review, an inquiry two years ago which was tasked with improving the gender balance on the boards of Britain’s biggest companies, revealed that the number of women on Boards have hit a record high. Lord Davies said 26% of FTSE 100 board members are now women, exceeding the goal of 25%. This is more than double the 12.5% female proportion in 2011.

Also in the UK, the government forced the BBC to publish its list of top earners (and from next year will force all medium and large companies to publish their gender pay gap).  The revelation of a gender pay gap at the BBC genuinely surprised insiders and others in the media industry. There was a 10% gap across the BBC – even though this is lower than the average of 18% across the UK as a whole.

 

Structural Change:  Key to Future Employment

Earlier this year futurist Shara Evans said millions of Australians are destined for the unemployment queue if they don’t “wake up” to the robot revolution.   Research by recruitment agency Randstad reveals that 84 per cent of Australians surveyed are not concerned that automation will affect their future job prospects, while 77 per cent believe that they won’t need to change careers in the next 10 years.   Ms Evans said: “The reality is that 40 per cent of current jobs in Australia won’t exist in 10 to 15 years due to automation — that’s five million jobs gone”.   Ms Evans based her comments on an early report from the Committee of Economic Development of Australia which had warned that more than five million jobs could disappear in the next 10 to 15 years because of technological advancements.

A report from the London-based International Institute for Environment and Development says the emergence of technologies are likely to mean that there will be less market for simple industrial manufacturers in poor countries because of automation. It also warned that the emergence of technologies could have “a sharply negative impact on gender equality”. The report states that sectors “in the frontline of the next wave of automation” included call centres which have provided a large number of jobs for women in some countries.

Recently, Westpac CIO Dave Curran said workers face career carnage from technology disruption unless they are enabled to re-skill on the job.

Westpac’s most senior technology executive has warned workers aged over 35 years old risk being left in the blocks by the wave of automation and new technologies, unless management in large organisations adjust to adapt to the changing world.

He said in a speech to the Trans-Tasman Business Circle in Sydney:

“One of the great conundrums of today is that we’ve got 21st-century technology smashing into 20th-century business processes and, to make it worse, those processes are still working under 19th-century governance …  We’re living in a digital revolution.  How we work is changing. It’s being driven by social, mobile, analytic and cloud-based technology.  We’ve been talking about robotics and AI [Artificial Intelligence] for quite some time, and they have arrived …  Our skills aren’t going to last – especially when you also consider we will live and work longer than we expected.”

Mr Curran said many digital transformation and technology change programs struggled because the executives leading them – often in their 50s – felt personally threatened by the changes that would happen if they succeeded.

Previously, employees learnt their jobs from predecessors and expected that knowledge would carry them throughout their careers, but with the digital and technological changes bringing transformations to the workplace, that acquired knowledge will not be enough.

It will be vital for workers to up-skill to keep their jobs and to rethink fundamental work practices.

Linking Executive Remuneration to ESG

Shareholders are stepping up demands on environmental and social issues.

Most remuneration plans can only cope with a few metrics, maybe six, for example, one or two financial metrics, such as sales growth or earnings per share, and two or three non-financial metrics, in areas such as quality or innovation. So, for a remuneration committee to justify a new metric, it needs to have a strong business case. The business case for sustainability is broad but not always easy to measure.

BlackRock, the largest asset manager in the world, recently said, “ESG factors relevant to a company’s business can provide essential insights into management effectiveness and thus a company’s long-term prospects.”

Companies will need to tailor their sustainability efforts to their commercial priorities. Adding such a metric only works if there is a clearly articulated business case and specific plans for improvement in that area. Without well-defined metrics tied to concrete plans, sustainability becomes a vague goal that is easy for executives to game.

 

US investors happy to show their disapproval of executive compensation

In the US, seven S&P 500 companies garnered less than 50% of the votes for their executive-pay plans in the most recent financial year, up from six in 2015 and four in 2014, according to data compiled by Bloomberg.

Many of the largest institutional investors have publicly stated views on corporate governance recently. There is harsher scrutiny of executive remuneration and compensation plans thought to be excessive.  BlackRock, the world’s biggest asset manager, publicly criticised drug maker Mylan in June over the company’s failure to address investors’ repeated complaints about executive compensation.

Mylan received less than 17% support, the lowest vote tally in an S&P 500 company for the past three years, after it granted chairman Robert Coury a $97.6m pay package. Bed Bath & Beyond lost its non-binding pay referendum for the third straight year with 43.8% of voted shares siding with the board. Oracle, which hasn’t won a say-on-pay vote since 2011, received 45% support.

About four of every five companies on the S&P 500 received at least 90% support for the most recent financial year, according to data compiled by Bloomberg. Among publicly traded companies whose executives appear on the Bloomberg Pay Index, which ranks the 200 highest-paid managers, seven failed to get majority backing for their compensation plans.

 

Super contributions triple in June quarter

The average amount added to super tripled in the June quarter as Australians looked to take advantage of the rule changes to contribution limits.

The SuperConcepts SMSF Investment Patterns Survey, which covers around 2,640 funds, indicated that in the June 2017 quarter, the average contribution amount tripled from $9,138 to $32,055, with 63 per cent of contributions being made during the last month of the quarter.

SuperConcepts executive manager technical and strategic solutions Phil La Greca said the last time contribution levels were this high was almost 10 years ago, in June 2009.

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