In the midst of the 2016 AGM season, a heightened scrutiny of executive remuneration among institutional investor is increasingly noticeable. Year to date, there are, within the ASX200, seven recorded strikes, at least twelve issuers with more than 10% against votes and an average level of vote support of 93% (in line with prior year).

For companies receiving strikes, shareholders primarily expressed concerns around disclosure, pay for performance relationships, and performance hurdles associated with both STIs and LTIs Furthermore, upon review of meetings that have transpired so far, common sources of investor concern have been around:

Performance targets and metrics used in the short-term incentive plans including:

• Increase of non-financial metrics which lack a clearly disclosed connection to the creation of shareholder value
• Use of board discretion in evaluating targets, with limited or opaque disclosure on historical performance compared to targets
• Reductions of targets and limited or opaque disclosure around the rigor of target-setting

Series of “problematic pay practices” that include:

• Retention payments with limited disclosure, sign-on payments / sign-on bonuses
• Use of performance measures that exclude write-downs or “one off” items
• “Top up” grants to compensate executives for losses due to dilution around a capital raising
• Use of fair value methodology
• Use of board discretion to accelerate vesting of LTI’s when performance targets have not been met (in change in control situations)

In the case of companies that showed significant improvements in voting outcomes over the course of the year (including those that received a strike last year), the common threads were:

• An articulate and concise remuneration philosophy that communicated to shareholders their approach to executive remuneration, highlighting a pay-for-performance orientation to motivate and retain a strong management team
• Structural changes that reflected the remuneration philosophy in practice across the quantum of pay as well as aligning remuneration with sustainable and long term shareholder value
• Clear and succinct disclosures that highlight key measures of performance (KMPs) and safeguards, as well as the rationale/process behind the determination of the KMPs

Contact us to further discuss how ISS Corporate Solutions can assist you with your remuneration report or to access the full 2016 AGM Season Review report.