We’ve witnessed increased levels of support for remuneration reports in 2022. In the previous 2021 season, 27 companies (9% of the ASX300) suffered a ‘strike’, more than 25% of votes being against adopting the remuneration report.
In the previous 2021 season, 27 companies (9% of the ASX300) suffered a ‘strike’, i.e. more than 25% of votes being against adopting the remuneration report.
In the 2022 AGM season, the resulting headline result was different, and somewhat surprising — the highest level of remuneration support for Australia’s largest 300 listed companies in years.
For the ASX300 in 2022, a total of 21 companies (7%) received a ‘strike’ on their remuneration report, with a further 11 companies (4%) narrowly avoiding a ‘strike’ i.e. receiving 20%-24.99% of votes against.
Key reasons
Strikes happened for a variety of reasons, including where a large investor was protesting or seeking board changes. Some of the recent areas of focus for investors and proxy advisors when considering remuneration include the following:
- The quantum of remuneration and link to performance — always closely scrutinised.
- The split between the cash and shares components of Short Term Incentives (STI), the receipt dates and vesting times for the shares, and how these were determined for KMP.
- The degree of discretion the board has to award bonuses, guarantee vesting and use claw back provisions, outside remuneration plan rules.
- Longer vesting for Long Term Incentives (LTI) — this is looked on favourably, with three years no longer the default, particularly if the company’s investment horizon is significantly longer than that.
- Companies seeking a blank cheque on termination benefits beyond the statutory 12 months — proxy advisors will usually recommend against this without a good explanation.
- Use of non-financial measures, particularly related to ESG issues — these are considered important, and require clearly defined and measurable targets.
Remuneration consultants TRP suggest that the main reasons for the lower number of Against votes in 2022 were:
- Companies simply being better at disclosure — utilising a chair letter, detailed executive KPIs including targets and stretch targets, and a detailed rationale in the case of applied discretion;
- ‘One-off’ awards and uncommon pay structures being less prevalent — there were fewer instances of special awards and board discretion during 2022; and
- 2022 being relatively less eventful than 2021, when the pandemic and lockdowns significantly affected the global economy, challenged companies worldwide and put KMPs under significant pressure.
Georgeson’s Insights
How can companies avoid the risk of a ‘strike’? By understanding how proxy advisors assess the remuneration policy and actively engaging with investors ahead of significant changes:
- Provide more rather than less detail about all aspects of remuneration, particularly targets and how they are applied, the STI split of cash and shares, vesting times and the rules around them, above average termination benefits and discretionary awards.
- Be aware that proxy advisors generally frown on board discretion to award payments outside policy rules. If you do this, you should clearly articulate why the financial results and underlying performance justify it and how it is in investors’ best interests, and generally limit it to a single specified year.
- Include non-financial targets, particularly related to the most material ESG topics you report on.
- Demonstrate that variable remuneration is genuinely ‘at risk’.
- Engage with your largest investors regularly — not just at AGM time. Make time to talk to them about their issues and concerns throughout the year and take their comments on board — and ensure you engage with them prior to locking in any new remuneration arrangements.
- If you received, or came close to, a strike the previous year, engage with the proxy advisors — well before they release their reports — and discuss any concerns with the remuneration report.
- Similarly, if you notice your Against vote starting to tick up over two or three years, begin the process of engaging with investors and consider utilising Georgeson’s remuneration advisory services to identify any potential issues well before you release your remuneration report.