Boards are always in a conflicted position with remuneration. NEDs are both the decision makers and the beneficiaries of those decisions, while they must consider good governance and their legal obligations. This Insight discusses why boards must receive fee recommendations from an independent remuneration consultant.
This Insight discusses various recent views on NED equity holding policies such as the "2 in 2"; that equity interests must be purchased on joining the Board, possibly with an interest-free company loan; the consequences of misconfiguration of NED equity; and undermining NED independence through the use of options.
Benchmarking KMP remuneration may seem like a simple process, but it can quickly and easily go wrong. We set out four pitfalls to avoid when benchmarking in 2022, using the example of a fictitious online electronics retailer, Nogan Limited.
During 2020 there was heightened public debate about instances of remuneration practices that did not seem to be reasonable and did not meet the requirements for shareholder approval. This responsibility rests with the Board – and breaches can lead not just to reputational damage but fines and disqualifications.
No business will be immune from the adverse effects of COVID-19 beyond the short term. With lessons from the GFC and the innovations since, we explore the key governance and practical issues for remuneration to be considered by boards and executives in tight times – as well as golden opportunities.
An emerging corporate practice is the imposition of minimum equity holding guidelines, "equity holding policies", on NEDs and senior executives. But all are not equal, and most do not deal with failure to comply or enforcement. We explore some key variables in the development of these policies and how they may be improved.
Over recent years NED fee increases have not kept pace with the fixed pay of senior executives, or even general employees. Companies that have not introduced NEPs will soon need to make increases to NED fees significant enough to attract attention.
Our own analysis indicates that fees paid to NEDs are significantly lower than their executive counterparts. Although boards have been reluctant to tackle this issue, it is an important one given the value-add now expected of NEDs, their increased workloads and personal risk exposure.
Significant equity holdings by a company's NEDs are a tax-effective way of strongly aligning their long-term interests and that of shareholders. All ASX listed companies should have an NED equity remuneration plan and potentially an equity holding policy.
We examine market practice re the composition of boards between executive and non-executive directors, as well as the male/female mix. We also discuss NED fee levels and aggregate fees limits (fee caps) and their relationship to the number of NEDs on boards.