12 Dec 2017

Proxy Advisor Policy Updates - Australia

Morrow Sodali

ISS, CGI Glass Lewis (CGI) and the Australian Council for Superannuation Investors (ACSI) have recently published their updated Australian proxy voting guidelines for the 2017-2018 period. Morrow Sodali has summarised the main changes and updates to the disclosed policies as it relates to remuneration practices, board composition and non-executive director (re)elections, and environmental and social governance concerns.

Remuneration

ISS

In its updated proxy voting guidelines, ISS discourages companies from using benchmarking as the rationale for fixed pay increases “unless it is applied infrequently (at no more than three-to-five year intervals)”. In general, benchmarking remuneration in line with current market practice “should not be used as a justification for any substantial increase”. ISS also states that “post-freeze ‘catch-up’ salary increases” will generally not be supported. In regards to variable pay schemes, companies that use non-financial measures are encouraged to be transparent in their disclosures and draw a clear link between the performance measure objectives and their strategy. It should also be noted that ISS “expects the majority of the payout to be triggered by financial performance conditions”. Companies should also be aware that any increases to maximum STI opportunities “should be explicitly justified”. Similarly, any increases in the award size of LTI plans should be linked to “more challenging targets”. Operational hurdles under an LTI plan will be reviewed on a case-by-case basis.

ISS also regards one-off retention payments as ineffective “and therefore not typically supported”. Companies introducing new or additional short or long term incentives in addition to existing plans are “likely to be viewed sceptically” by ISS. It is also clearly stated that one-off payments in a change of control event will generally not be supported.

CGI Glass Lewis

In its most recently released policy document, Morrow Sodali has not observed any major changes in CGI’s remuneration-related policy disclosure.

ACSI

In its 2017 Governance Guidelines, ACSI states that it will consider the quantum of total remuneration packages paid to executives (both actual and potential remuneration) when assessing a company's remuneration arrangements. ACSI encourages companies to ensure that quantum of pay "is fair and reasonable having regard to factors such as the complexity of the organisation and internal pay relativities".

In terms of variable remuneration, ACSI states in its guidelines that the vesting of incentives should not commence when performance is below the median of relevant peers.

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Topics

Directors ESG Governance Remuneration Shareholder Communication Shareholder Engagement Australia