Elizabeth Proust, one of Australia’s most prominent company directors, today urged boards today to rebuild trust with shareholders following attacks against excessive pay and easy incentive targets for executives.
Last year there were more than 100 successful votes at annual general meetings (AGM) against remuneration reports, including shareholders votes as high as 84% against pay proposals for CEOs and the board.
“Reflecting on our own behaviour, and even if we find it be above board, considering how we can go further to rebuild trust with the investor community is something we all need to think about well ahead of next AGM season,” says Proust.
Angry shareholders voted in November against the Commonwealth Bank’s remuneration report, the first time a big four bank had been rejected in this way by shareholders. This was a first strike. If it happens again, the board of directors is spilled.
At the last moment, the bank also withdrew proposals to add more so-called “soft targets”, which feature non-financial measures, to CEO Ian Narev’s bonus calculation.
Narev’s pay is 100 times larger than the average wage in Australia when taking into account his bonuses. In 2016, his total remuneration was $12.30 million.
Proust, who is also chair at Bank of Melbourne and Nestle Australia, didn’t refer to any single company.
“Do we need more corporate embarrassments, or front page stories, or examples of irresponsible decision making to know that there are issues within organisations that need to be addressed?” she asked.
The chair of the Australian Institute of Company Directors (AICD) chose the opening address of the annual Australian Governance Summit as her platform to push for better engagement with shareholders, particularly institutional investors.
“It is naïve to think that there aren’t practices out there that have deserved a strike … practices which are excessive, or unreasonable, that the board does have control over,” she told her fellow directors.
“We need to reflect on the systems we as directors put in place and whether they’re achieving the good governance we strive for.”
She says one key area is so-called soft targets for incentive schemes.
“The blowtorch was put to them last AGM season,” Proust says.
“However, just because a board sets and remunerates on non-financial targets does not mean they are rewarding a CEO just for doing their job.”
She says the question is the extent to which a target is stretched, not whether it is solely financial or not.
“There’s no doubt boards have received mixed messages in this area — whether it be from investors or politicians — but it is inherent upon boards to go out and argue for and champion the value of non-financial targets in our remuneration frameworks,” she says.
Proust says here have been instances where those voting have refused to engage reasonably and ethically with companies.
“There are examples of errors or misinformation in proxy advisor reports that they are failing to correct once companies have engaged with them in good faith,” she says.
“We’re also very concerned with feedback we’ve received that at least one proxy advisory firm is refusing to engage with companies at all. Neither of these practices is good enough and be assured we are tackling those issues.”
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