Optimise your incentives (variable or at-risk remuneration) with clear, independent advice that understands and balances stakeholder tensions

In the war for talent, ensuring those that create value in your business are aligned with other stakeholders and have trust in a strong performance/reward framework is a critical part of your attraction and retention strategy.

Since 2001 GRG has been an independent expert provider of comprehensive incentive remuneration review and design services. The starting point for discussion is to determine whether such remuneration is intended as an incentive, bonus, at-risk, or a nuanced approach that we call Variable Remuneration. Our advisory reports can be provided as a review of your existing approaches, or simply focus on current/emerging best-practices tailored for your business in the case of a blank-slate approach. Whether you are looking to optimise for performance/reward alignment, cost/benefit, for governance/risk management or anything in between, we can help you balance the often competing expectations of your particular stakeholders with a collaborative approach to variable remuneration framework development.

A critical success factor for both listed and unlisted companies

Effective variable remuneration help to aligns the interests of stakeholders rather than trading-off tensions that often lead to undesirable outcomes. This applies equally to listed and unlisted companies, but for ASX listed companies the “two strikes” rules on remuneration report voting has made incentives, bonuses, LTI, STI and variable remuneration of all kinds the focus of remuneration governance. Boards that have not optimised across stakeholders will face a strike when an outcome that reveals the misalignment of stakeholder interests inevitably arises.

To make matters harder, this area is highly regulated with the Corporations Act, Tax Act, contract law and often ASX listing rules needing to be considered. GRG is unique in having a deep understanding of all the factors needed to produce an optimised variable remuneration structure tailored to your vision of the future. We also have significant experience developing these structures for global roll-outs and international teams and have a network of international partners that can support our clients with legal, tax and reporting compliance.

A failure to get these kinds of remuneration plans right can at worst mean exposing your talent to financial risk even loss, or a spill of the board, but if done right can be the key factor that shares wealth fairly among contributors in a way that attracts, motivates, aligns and retains the people that will lead the success of your business.

Partner with GRG to create effective incentives/variable remuneration

GRG may be unique in being a specialist advisor that understands the wide range of complex issues involved in designing variable remuneration for the short, medium and long term, and then being able to take the next step with you to effectively implement them:

  1. Understanding internal stakeholder requirements (board, executives, employees)
  2. Understanding external stakeholder expectations (shareholders, customers, institutional investors, proxy advisors and communities in which you operate)
  3. Understanding regulatory requirements (Corporations Act, Tax Act, international legal and tax, ASX listing rules, APRA regulations, ASIC class orders, Banking Act, accounting impact and contract drafting)
  4. Developing formal and legal documentation that works optimally with regulations and accounting requirements – plan rules, invitations, explanatory booklets and FAQ sheets, notices, trust deeds etc.
  5. Developing policies, procedures and frameworks to support governance of plans on a sustainable, long term basis
  6. Developing roadshows and workshops to maximise engagement from the people that will participate, and giving them opportunities to ask questions
  7. Providing regular feedback and performance tracking to support ongoing engagement in the link between performance and reward.

Key issues for short term incentives/STVR

  1. Identifying Key Result Areas and then Outcome Metrics that drive sustainable long term value creation in the short term, rather than rewarding for just doing the job competently – we often see plans with 25 or more metrics that create too much noise to be effective and are trying to be performance management tools instead of performance reward tools! We think performance management frameworks are critical, but separate, because incentives can not teach anything or help people improve their performance.
  2. What does risk management look like for you and how does sustainability fit into your frameworks?
  3. Identifying fairer ways to implement STVR deferral without exposing participants to risk of loss (unless you want that) – these approaches improve governance controls, sustainability and alignment over the long term without making your team feel like they are giving something up
  4. Ensuring clarity when the unexpected happens is often key to getting the right outcome: change in control, returns of capital, retirement or resignation, demergers, death or disability, changing jobs during the year, or part-year joiners, fraud or just material misstatements in financial reports – does your plan leave too much open to uncertainty?
  5. Giving participants flexibility on when to realise a benefit and optimising their tax is often key to ensuring the plan is valued
  6. What safety-nets need to be in place to deal with the truly unforeseeable? Board discretion and gates for example?
  7. Providing clear rewards for clear performance outcomes that participants understand they can contribute to is a key factor in ensuring your plan is effective
  8. Having a separate variable remuneration framework to calibrate your plan each year will support sustainable, consistent and effective implementation of your plan.

Key issues for long term incentives/LTVR

  1. Do you believe in the service testing retention dogma? Or are you joining the leading edge to provide long term alignment and requiring skin-in-the-game even post-employment?
  2. What does risk management look like for you and how does sustainability fit into your frameworks?
  3. How can you maximise the psychological value of the opportunity and get deep engagement from participants?
  4. What does value creation mean for your stakeholders over the long term? How do your people drive that value creation and do they understand that link and how do we measure it?
  5. Ensuring clarity when the unexpected happens is often key to getting the right outcome: change in control, returns of capital, retirement or resignation, demergers, death or disability, changing jobs during the year, or part-year joiners, fraud or just material misstatements in financial reports – does your plan leave too much open to uncertainty?
  6. Giving participants flexibility on when to realise a benefit and optimising their tax is often key to ensuring the plan is valued
  7. Providing clear rewards for clear performance outcomes that participants understand they can contribute to is a key factor in ensuring your plan is effective
  8. Having a separate variable remuneration framework to calibrate your plan each year will support sustainable, consistent and effective implementation of your plan
  9. The Corporations Act contains many bear-traps that lead to breaches of the law if you do not get the right advice
  10. Company tax and accounting implications are key to ensuring optimisation of long term remuneration
  11. What safety-nets need to be in place to deal with the truly unforeseeable? Board discretion and gates for example?
  12. Providing regular feedback and tracking of long term variable remuneration is the key to ensuring it does not get put in a drawer and forgotten about until the end.

Key issues for hybrid plans

(Single incentive plan, executive incentive plan, combined incentive plan or medium term incentive plan)

  1. Many of the same issues outlined above apply to hybrid style plans, however the pressure is really much higher on getting the short term structures right because they drive the long term outcomes as well
  2. Are you looking for a simple hybrid plan (deferral and service testing only for example) or a complex hybrid plan (subjecting deferred awards to indexing or performance testing)
  3. Is it a cash plan with “banked awards” or a combination of cash and equity?
  4. How do you manage the market’s feedback on hybrid plans to ensure your strike risks are as low as possible?