Proxy Season

Corporate Governance Trends in the Australian Upcoming 2021 Proxy Season

Five key highlights 

 When organisations get executive compensation right, the positive effects flow throughout the entire organisation. 

 A recent Diligent webinar highlighted five key takeaways that help shed light on stakeholder concerns to better understand corporate governance trends in the Australian market for the upcoming 2021 proxy season. 

  1. Aligning remuneration with performance:
    Diligent’s findings suggest that 61% of ASX 100 companies and 65% of ASX 300 companies show a disconnect between pay and company performance from 2018 to 2020. The majority of organisations do not align remuneration strategies based on stock pricetotal shareholder return, this being an outcome, rather than a driver, of performance. Companies must determine the intensions of their remuneration strategy and align this with their business strategy to develop an effective remuneration framework that will ultimately drive performance. 
  2. Aligning remuneration during a pandemic:
    The impacts of Covid have been unpredictable. Cancelling dividend payouts, announcing pay cuts, and laying off employees were just some of the drastic measures companies had to implement. The ability to forward plan, set budgets, and forecast accurately is the most difficult it has been in twenty years with some sectors hit hard, while others have flourished. This has made remuneration a more complex and involved process with REM committees meeting more regularly to monitor performance, the impact of Covid and the ability of executives to execute strategies. 
  3. More strikes than we’ve ever seen before:
    Marking the anniversary of the two-strike rule, Ian Crichton, Principal and MD at Crichton & Associates states that it has had a positive impact in making boards more accountable due to the negative stigma around a strike. However, threat of a strike in a volatile market should not factor heavily on remuneration. Businesses should “stick to their guns” as long the strategy is narrated clearly, aligned, and monitored properly.
  4. Incorporating ESG (metrics) into remuneration:
    ESG belongs in remuneration plans if businesses are looking to achieve ethical corporate culture and sustainability. Findings suggest that 38% of ASX 300 companies are now employing ESG performance metrics in 2020, and that there was a 21% increase in ASX 300 companies introducing these metrics over the last year.   drive performance in a particular area specifically aligned in terms of what the business is trying to achieve through their strategy, for example diversity or safety. If ESG is important to the business and shareholders, it must, and will, find its way into remuneration; either as a KPI or performance gate.

  5. Rising shareholder activism:
    Shareholder proposals have become more common, which is surprising given their binding nature, with most focusing on climate change, workers’ rights, and human rights. As a result, many Boards are predicting proposal scenarios and preparing in-depth playbooks to communicate effectively. 

 

To listen to the replay of the full discussion with Susan Forrester, Chair and Non-Executive Director, Jumbo Interactive Limited, Ian Crichton, Principle, Crichton and Associates and Matthew DeGuiseppe, Vice President, Research and ESG, Diligent click here 

 

For more on the topic, we recently created a report called “More About Pay than About Performance”. In this report, we analyse changes to chief executive officer (CEO) pay considering the COVID-19 pandemic, as well as trends in remuneration components and performance measures. 

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