Corporate Governance

Board Performance Makes a Difference – Remuneration Report Shows

Board member pay is lower overall in Australia this year, as corporate governance rules on executive pay are broadly applied.

The Governance Institute of Australia’s seventh annual Australian Board Remuneration Survey , released on June 4, 2019, reveals Of the boards at companies listed on the Australian Stock Exchange (ASX), only 32 per cent saw increase. Less than half of directors at private businesses received pay increases.

But financial services companies fared much worse. In the wake of the Royal Commission into Misconduct in Banking, Superannuation and Financial Services Industry Inquiry , What revealed bribery, forged documents, repeated failure to verify customers , as well as the charging of fees to clients who had died.

Shareholders at Australian Banking and Insurance Companies.

These boards saw 11 per cent reductions in pay packages for the chair and directors, while managing directors and CEOs saw their pay reduced by 10 per cent. This is in sharp contrast to the previous year in which all directors received substantial pay increases.

Megan Motto, Chief Executive of the Governance Institute of Australia, said it was clear that the effects of the investigations were being felt by the financial institutions.

“This data therefore reflects the Governance Institute’s Risk Management Survey released last week, which showed that the financial services industry is extremely concerned about the regulatory effects, brand damage, and liability. The leaders and boards of these organizations are seeing this reflected in their review packages. “

In Australia, corporate governance is moderating executive pay – research 

The pressure on boards is a further example of corporate governance.

Research published in March 2018 by the Australia Institute confirms that Australia’s
“two strike rule” is effective. The AGMs, shareholders must consider a resolution to ‘spill’ the board.

“The rule has moderated excessive CEO pay at or below its executive-pay peak,” says the Institute. “There is evidence that similar ‘say on pay’.

In 2018, major shareholders use their ‘strike’ vote with great effect. “The recent AGM season was characterized by several larger-than-usual votes against management recommendations. Australian Commission of Superannuation Investors (ACSI) Chief Executive Louise Davidson. “This is indicative of a loss of trust in boards, arguably triggered by the ‘banking’ royal commission, by no means limited to that sector .

“These outcomes are also noteworthy for another reason. They demonstrate their role as stewards of capital. Investors are voting to hold companies to account for behavior that falls below community and market expectations. In doing so, investors acknowledge the strong link between good corporate governance (including effective management of their environmental and social impacts) and sustainable long-term returns.

Nonetheless, the ACSI is calling for stronger measures. Every three years, and annual disclosure of CEO pay ratios to shareholders.

The year 2018 saw a number of major uses of the shareholder ‘strike.’

At Sigma Healthcare , Brian Jamieson, Chairman of the Board, said: “Shareholders delivered to 18 per cent vote against the report, signaling their ‘frustration over Sigma’s decision to reject Australian Pharmaceutical Industries, as well as a protest against the board.

Telecommunications firm Telstra thus faced a massive shareholder revolt against a lucrative executive pay package at its AGM on October 16, as the company cut costs and 8,000 jobs in the same year.

And at the gambling-entertainment group Tabcorp’s AGM on October 17, 40 per cent of shareholders said no report to the company. Their objection was the doubts about the successful integration of the rival company. “This award demonstrates Australian investors’ preference for awarding incentives based on the successful integration of acquisitions, rather than granting windfall gains simply for doing the deal,” Davidson adds.

Australia moves to Modern Governance for Remuneration

There is further evidence of the role of corporate governance in controlling executive pay in Australia. The latest version of the Australian Corporate Governance Code , as published by the ASX, imposes a number of new requirements did implement best practice in modern governance, with a push toward integrated reporting based on processes enabled by board management software.

Listing companies are required to prepare an annual report outlining the allocation of director’s fees as well as any further remuneration paid to directors and senior management (Remuneration Report). The Remuneration Report Squire Patton Boggs points out. The AGM, as a note from the Sydney office of law firm, must be published in the company’s annual report and presented to shareholders.

Australian Boards wants to confer intensively among themselves, with management and with shareholders. They want to benchmark reports, to enable fair comparisons with other companies in their sector, as well as the background and best practice in order to make informed decisions.

Modern governance calls for the support of board management software in order to manage this process.

Diligent: The Only Modern Governance Solution

Digital governance solutions make the task of creating standards easier and more efficient.

Diligent Boards  is a board portal that offers a secure platform in which boards and compensation committees. It offers unlimited, cloud-based storage for agendas, minutes, board reports and other important documents.

Diligent Messenger  is a communications tool that offers board directors a secure way to communicate without ever leaving the board portal.

Executive compensation committees may opt to use one of the secure, virtual data rooms to collaborate, exchange documents, explore trends and develop their standards for pay for performance.

But good governance is not just one thing – so why buy software that only manages your board documents? At Diligent, we empower leading organizations around the world to make good business decisions. In the ever-changing landscape of the world, governance has not kept up with the fast pace of change. Infrequent meetings, the use of paper for records and materials, and the use of secure communication tools for sensitive data. T

Modern governance tools built to support leaders in making smarter decisions faster in this new landscape.

For more information or to see how Diligent’s can change your boards governance practice contact us

Featured Blog