Recent media coverage about pay-outs to departing executives and directors has led to speculation that, among other things, companies will be changing their policies from providing a ‘golden handshake’ to a ‘golden parachute’. Executive and director remuneration is also likely to feature in the soon to be released ASX Corporate Governance Council guidelines.

As executive and director remuneration is an important corporate governance issue, Chartered Secretaries Australia is keen to get a snapshot of current practice, the likelihood of any changes and current views on aspects of the debate.

1. Does your company pay retirement benefits to non-executive directors?

Yes 71%
No 23%
Don’t know 6%

Comment:

b) If yes, do you think your company will consider abolishing them?

Yes 56%
No 33%
Don’t know 12%

Comment:

It is unlikely that the current directors would voluntarily forego this benefit.
Will most likely abolish this practice.
Directors are likely to adopt a scheme that is paid for during directorship and within the shareholder approved limit for directors fees.
We have abolished retirement benefits for directors appointed after 1 July 2002. We are considering abolishing retirement benefits for serving directors.
For well-paid directors, the payment of retirement benefits appears to be double-dipping.
Will probably faze-out over time as new directors are appointed they won't be offered retirement benefits.

2. Do you think full disclosure of executive remuneration, and the resulting ease of comparability, serves to drive payments upwards?

Yes 53%
No 47%
Don’t know

Comment:

Direct comparisons are more readily available to support the normal and natural push for increased remuneration.
This consequence was quite evident following the introduction of the law requiring the disclosure.
Comparisons made between executive remunerations should only be used a guide for future payments. Actual Payments must be linked to actual performance in the achievement of predetermined tasks or goals.
If anything, it may have the opposite effect — the embarrassment factor.
Depends on circumstances of individual company — sometimes ‘performance’ can be exceptional by reducing the quantum of the loss/damage.
I think the payments are so complicated that people do not understand them and they misinterpret them which serves no purpose. I am against full disclosure of executive remuneration particularly when full disclosure of government remuneration is not a requirement. The practice of disclosure has proved that it is not adding anything and is actually confusing people instead. It is more trouble than it is worth and should be dropped as a requirement.
The Annual Report makes it more likely that high levels of remuneration set benchmarks.
Exec remuneration disclosure provides a desirable level of transparency.
Yes. This has been proven over the last 10 years.
Certainly used by executives to benchmark against their current packages. Up to company to then assess executives contribution against others in the market place.
These people have egos and nothing hurts more than to be the lowest paid on the table reported in the newspaper. All organisations want to be at the 75th percentile for snr execs.I also do not see how snr execs can justify annual increases in the teens regardless of TSR, while the rest of an organisation has CPI increases or retrenchments.

3. Do you think executive remuneration and pay-outs should be more directly linked to performance?

Yes 88%
No 12%
Don’t know

Comment:

The real issue here however is establishing appropriate performance measures. The share price or dividend are not always the appropriate measures.
Except where there is a genuine compensation element in the case of a no fault termination e.g. sale of business etc.
I also believe a greater proportion of executive remuneration should taken in company shares.
It must go belong simple performance. An executive can perform well but achieve nothing for the organisation. Linking performance to predetermined goals must be the way to go.
I believe that annual remuneration is already directly linked. To a large extent pay-outs on termination are largely the result of signing on agreements. ie may be deferred remuneration or alternatively a payment that is contractually agreed to at commencement in the event of a termination occurring. This is a cost of securing the services of the person concerned and may not be (and could not be without some difficulty) related to the performance of the person in the period immediately preceding their termination.
No as it already is linked to performance.
There should be both fixed and variable components in remuneration as well as payouts.
Yes, but not entirely. Many industries are impacted by matters beyond managers control, but if manager had not performed well the loss(eg) may have been a lot worse. Should he/she not get some reward even though profits may have gone down?
Needs to be direct link to short and longer term performance and no ability to change award scheme.

4. Do you think the information gained from full disclosure of remuneration for executives genuinely enables shareholders to make a more informed investment decision?

Yes 41%
No 59%

Comment:

"Mum and dad" investors tend to react in a knee jerk fashion to the amount of the payment rather than reviewing what the payment relates to.
Shareholders can then compare company performance with remuneration levels and if necessary comment or ask questions at the AGM.
While it adds greater transparency to a company's reporting it doesn't really provide any insight into likely performance of the company. Greater disclosure in the form of MD&A (Management Discussion and Analysis) or forecasts would be of greater value in making a more informed investment decision.
Executive salaries and benefits is only a minor impact on any investment decision. The real question is how the organisation is performing.
Not necessarily but perception now is everything.
Probably makes the investment decision even more difficult as the information has been shown to confuse investors above all else.
Helps with other factors — shareholders need to know remuneration principles so they can decide importance to them — also executives are day to day managers and shareholders unlike small business owners have no ready access to such information.
It helps and in particular allows investors to sense the culture of a company and its management.
A handful of shareholders probably understand the remuneration structure and could form a meaningful view of whether it was appropriate or not. It mainly helps headhunters poach staff and force remuneration up.
Information enables better decision making but I don't believe many (if any) shareholders review this in detail to understand the full implications. May be worthwhile if there was a requirement to show $ implications under different scenarios.
It’s their money Ralph!
The information provided is not representative at all. The top 5 execs often only reports the few ex-pats that the Company has employed. Also the fact that execs retire after 1 July, means it is a good 15 months (and way too late) before shareholders discover their payout. I think the disclosure about exec contracts should be more rigorous.

5. Do you think disclosure of remuneration should be:

left to “if not, why not, please explain”; 47%

OR

legislated. 53%

Comment:

Legislated for top 200 listed companies and left to "if not, why not, please explain” for all other companies.
Legislated to minimise avoidance and maintain a level playing field for all companies.
This requirement should be covered by the listing rules not the Corps Act. It should also be explained comprehensively by an ASX guidance note.
It would be difficult to legislate remuneration for executives.
Guidelines are better than black letter law.
If the legislation could be written clearly and intelligently, this is the preferred ‘solution’(assuming you agree there is a problem that needs solving) as it overrides all the complaints. However, given past experience and existing track record, the prospect of this legislative disclosure of remuneration being balanced is very limited, so let’s stick to the 'principles' method as at least there is some chance of a reasonably balanced and fair outcome, and an opportunity to justify a result that may appear to be outside of the guidelines. Commercial life is more complex and diverse than regulation can comprehend or allow for — one size does not fit all. Neither. It should not be a requirement at all.
Legislated minimum with scope for tailored disclosure above the statutory minimum.
The current legislation is flawed and ignored by some companies. I think the approach adopted in the listing rules to corporate governance is more appropriate.

Tim Sheehy
CHIEF EXECUTIVE