How do we rebuild shareholder trust on executive pay

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Appendix 1: Productivity Commission final report on executive remuneration Productivity Commission recommendations What this means / PwC view . Prohibit key management personnel (KMP) (includes directors) voting on remuneration reports – Amend Corporations Act to prevent KMP from voting their shares on remuneration reports and any resolutions related to those reports. • Mainly impacts organisations for companies where the KMP have significant shareholdings. Where the KMP own the majority of shares, the situation could arise where remuneration policies are being determined by the minority of <strong>shareholder</strong>s which PwC <strong>do</strong>es not believe is appropriate. • PwC believe this recommendation is better incorporated into the ASX Guidelines rather than being incorporated into the Corporations Act. This sends the message that it is best practice for KMP not to vote their shares on remuneration reports, ho<strong>we</strong>ver it also gives companies the flexibility not to comply with this requirement if they believe it is not appropriate for their circumstances. 5. Prohibit executives hedging equity – Amend the Corporations Act to prohibit executives hedging unvested equity or vested equity subject to holding locks. • The prohibition of hedging unvested equity should not be a major issue for most companies as many already prohibit this practice. • The prohibition of hedging vested equity subject to holding locks should also not be a major issue, ho<strong>we</strong>ver PwC’s view is that executives should be able to hedge this equity if they wish to <strong>do</strong> so. This is because once the equity has vested, the executive is absolutely entitled to it and, subject to trading restrictions and company policy, it is similar to other personal investments. 6. Prohibit KMP (including directors) voting undirected proxies on remuneration reports – Amend the Corporations Act and relevant ASX listing rules to prohibit KMP from voting undirected proxies on remuneration reports and any resolutions related to those reports. • Implementation will likely prove challenging; undirected proxies could represent a large number of potential votes on remunerationrelated issues. . The Corporations Act should be amended to require proxy holders to cast all of their directed proxies on remuneration reports and any resolutions related to those reports. • Implementation may prove challenging. 8. Improve information content of remuneration reports to include: – a plain English summary statement of companies’ remuneration policies; – actual levels of remuneration received by the individuals named in the report • Many companies already spend considerable time trying to make their remuneration reports as readable as possible. The challenges come from trying to comply with the Corporations Act and Accounting Standards mandated disclosures while attempting to present information <strong>shareholder</strong>s would like to see. • Actual realised levels of reward will require careful definition to ensure disclosures have been made using similar principles. There – total company shareholdings of the are also real challenges in relation to the timing of the valuation individuals named in the report. – eg is it at the earliest vesting point, when the holding lock is The Australian Government should released or when the shares are sold? establish an expert panel under the • Revising the Corporations Act and regulations to improve the auspices of the Australian Securities information content of remuneration reports is complex. This is and Investment Commission to advise due to the multitude of stakeholders, their different information it on how best to revise the architecture needs and the desire to keep remuneration reports as simplistic of section 300A of the Corporations Act and easy to understand as possible. PwC therefore agrees with 2001 and the relevant regulations to the Productivity Commission that an expert panel should be support these changes. established to consider these issues. 48 | PricewaterhouseCoopers Executive Remuneration – Fourth Edition 2010
Appendix 1: Productivity Commission final report on executive remuneration Productivity Commission recommendations What this means / PwC view 9. Remove superfluous disclosure – The Corporations Act should be amended such that only KMP remuneration levels are required to be individually disclosed – The requirement to also disclose the top 5 highest paid executives should be removed. • Positive simplification of remuneration disclosure. 10. Disclosure of remuneration advisers • Greater remuneration disclosures. – The ASX Corporate Governance • PwC is supportive of the recommendation for companies to Council should recommend disclose their remuneration advisers, ho<strong>we</strong>ver <strong>we</strong> believe that that companies disclose their further guidance should be provided to companies in respect of remuneration advisers, who how they should meet this recommendation. For example, often appointed them, who they reported remuneration advisers may advise the board or management on to, and the nature of other work specific remuneration arrangements rather than the company’s undertaken for the company by those entire remuneration strategy. If remuneration advisers are named, advisers. the broad nature of the advice requested should also be disclosed. PwC also believe that this recommendation should only apply if the board or remuneration committee acted upon the advice of the remuneration consultant as otherwise the disclosures will be misleading. • PwC <strong>do</strong>es not believe it is necessary for the company to be required to disclose the nature of other work undertaken for the company by the remuneration adviser. This is because firms can legitimately provide other services to companies, such as tax, accounting, legal or other consulting advice provided that appropriate protocols are in place. 11. Require ASX 300 remuneration advisers • This recommendation will be familiar to APRA-regulated institutions to be independent of management as this is similar to the APRA Prudential Standard on Governance. – The ASX listing rules should require • Management will still be able to engage a remuneration adviser and that where an ASX 300 company’s this adviser can still be the same as the adviser to the remuneration remuneration committee (or board) committee / board. This requirement is about ensuring that uses remuneration advisers in where the remuneration committee / board uses advisers that respect of KMP remuneration that they will need to be commissioned by, and report directly to, the these advisers be commissioned by, remuneration committee / board. and their advice provided directly to, the remuneration committee or board, independent of management. – Confirmation of this arrangement should be disclosed in the company’s remuneration report. 12. Institutional investors should disclose • It is likely to become more difficult for companies to forecast how their voting on remuneration reports institutional investors will vote their shares on remuneration-related and other remuneration related issues resolutions. This is because the disclosure of institutional investor – Initially this should be progressed voting may change their voting patterns. on a voluntary basis by institutions • Implementing this practice on a voluntary basis in collaboration in collaboration with their industry with industry organisations is likely to result in different outcomes. organisations. 1. Remove termination of employment as • Companies will be able to align executive remuneration to a taxing point under the employee share long-term company performance even after the executive has scheme income tax rules for equity that terminated employment. qualifies for tax deferral and is subject • Aligning executive pay to long-term company performance has to risk of forfeiture. been emphasised internationally by the Financial Stability Board and the G20 and locally by APRA. PricewaterhouseCoopers Executive Remuneration – Fourth Edition 2010 | 49
Page 1 and 2: Executive Remuneration Fourth editi
Page 3 and 4: xxxxxxxxxxxxxxxxxxxxxx Contents Bre
Page 5 and 6: Breaking the mould The increasingly
Page 7 and 8: Breaking the mould “What about pe
Page 9 and 10: Breaking the mould sharehol
Page 12 and 13: Risk and reward Globally, during th
Page 14 and 15: Risk and reward So what can be <str
Page 16: Risk and reward 1. 2. . . Understan
Page 19 and 20: Aligning reward to performance is a
Page 21 and 22: Aligning reward to performance is a
Page 23 and 24: Regulation, regulation and more reg
Page 25 and 26: Regulation, regulation and more reg
Page 28 and 29: Who wants to be the chair of a remu
Page 30 and 31: Who wants to be the chair of a remu
Page 32: Who wants to be the chair of a remu
Page 35 and 36: Being independent The perception an
Page 37 and 38: Remuneration committees need to bec
Page 39 and 40: Choppy waters It is clear from the
Page 41 and 42: Choppy waters 6. Get shareh
Page 43 and 44: A look in the rear-vision mirror: A
Page 45 and 46: A look in the rear-vision mirror: A
Page 48 and 49: Appendix 1: Productivity Commission
Page 52 and 53: Appendix 1: Productivity Commission
Page 54 and 55: Appendix 2: The APRA remuneration a
Page 56 and 57: Appendix 2: The APRA remuneration a
Page 58 and 59: Our Team Our People and Change team

How do we rebuild shareholder trust on executive pay

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