The Commonwealth Bank announced changes in executive remuneration this morning, ahead of its annual general meeting (AGM) in November.
“Following concerns raised at the 2016 AGM relating to the Bank’s remuneration framework and measures, the Board consulted widely with stakeholders throughout the year, and undertook a comprehensive review of the executive remuneration strategy, governance and framework,” CBA chair Catherine Livingstone said.
The changes have been implemented after CBA received a “first strike” at its Annual General Meeting last November, when more than 25% of shareholders voted against executive performance measures in the remuneration report.
According to the “two strikes” rule introduced in 2011, if more than 25% of shareholders vote against the remuneration report in consecutive years, the board of directors is spilled and must face a vote by shareholders.
For short-term incentives in executive remuneration, the bank said that financial targets would remain unchanged. However, the weighting of financial measures as part of the short-term incentive calculation will be increased to 60% from 40%.
In addition, the deferred component of the short-term incentive plan will be delivered in equity, rather than cash.
The vesting period for short-term incentives (STVR) will also be increased to two years from one year, with 50% vesting in the first year and the remaining amount in the second year.
“This change further strengthens the link between STVR outcomes and performance over the medium term,” CBA said.
“This also provides the Board with greater opportunity to adjust deferred STVR outcomes, if required, by taking into consideration any relevant matters that occur over the vesting period.”
The bank also made some changes to its long-term incentive (LTVR) calculation inputs.
Previously, the LTVR award was based on 75% total shareholder return, and 25% relative customer satisfaction.
The updated parameters will be 75% total shareholders return, 12.5% trust and reputation and 12.5% employee engagement.
This table from CBA’s notice of its AGM shows the bank’s updated remuneration principles:
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