At a time when companies are considering their remuneration structures for the new financial year, we look back to the lessons learned from remuneration report voting during the 2016 AGM season.
We found an unprecedented seven ‘first strikes’ received on the remuneration reports for S&P/ASX 1001 entities. This compared to four in the previous year.
First strike recipients were AGL Energy Limited, Boral Limited, carsales.com Limited, Commonwealth Bank of Australia, CSL Limited, Goodman Group and Woodside Petroleum Limited. In particular:
- Commonwealth Bank of Australia withdrew a proposed resolution to approve CEO incentive awards which included a 25% non-financial performance hurdle for People and Community, despite Commonwealth Bank stating in a media release2 that lodged proxies indicated that the resolution would pass; and
- carsales.com Limited suffered a near miss in 2015 with a no vote of 24.8%, then proceeded to a first strike in 2016 with a no vote of 54.79%.
For the fifth year in a row, no S&P/ASX 100 companies on a first strike received a second strike.
In response to first strikes in 2015, measures taken by entities included:
- incentives not being payable in circumstances where non-financial hurdles are achieved but financial measures have not been met;
- introducing a financial hurdle of return on capital employed (to replace peer total shareholder returns);
- deferral of part of short term incentives into restricted equity; and
- freezing the remuneration of non-executive directors.
Over 20 companies in the S&P/ASX 100 sought and obtained approval to increase their non-executive director fee pools. This included first strike recipients AGL, Boral and CSL. Query whether these entities will utilise these approvals in the new financial year, or freeze non-executive director remuneration other than for new board members.
To read our 2016 AGM Season survey in full, click here.