Get valuable insights into KMP remuneration

At GRG, we can help you navigate the complexities of KMP remuneration. Our complimentary Remuneration Insights share the thoughts of some of Australia’s leading KMP remuneration consultants using our extensive Australian KMP remuneration database.

Equity Remuneration in Micro Resources Companies

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Since 2015 unlisted start-up companies have been able to access a specific tax concession for employee share schemes. Employees and directors of ASX listed Micro Resources Companies can also qualify for tax deferral on rights and options in their remuneration packages. The same provision can also apply to other small ASX listed companies in industry sectors such as technology and medical, during development stages.

Rights Plans Better than Share Purchase Loan Plans

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Share Purchase Loan Plan (SPLPs) are often believed to be more tax efficient for executives than Rights Plans, because SPLP share price gains are generally 50% capital gains tax free whereas Rights are 100% taxed under the employee share scheme (ESS) taxing provisions. We debunk that commonly held belief.

Remuneration and Financial Crisis Management

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No business will be immune from the adverse effects of COVID-19 beyond the short term. Lessons from the Global Financial Crisis, as well as innovations since, can be drawn upon. We explore the key governance and practical issues for remuneration to be considered by boards and executives in times of tight cash flow. There is even a golden wealth creation opportunity for those with a modern rights plan.

Enforcing “Skin-in-the-Game”

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Properly weighted LTVR plans can facilitate longer term holding of equity interests by executives, but most are structured to neither assist nor compel executives to retain the equity earned. We examine practical optimisations of LTVR plans to achieve more “skin-in-the-game” for senior executives.

Unlocking the Secret to Long Term Alignment

120

Executives retaining large equity holdings in their employers promotes genuine long term alignment. However the many obstacles to this encourage the disposal of equity as soon as it vests to pay down an unnecessary tax liability, exposing them to ASIC scrutiny. We identify the obstacles and offer practical solutions for long term equity holding by KMP.

Demergers & Long Term Variable Remuneration

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Rarely do the rules governing long term variable remuneration (LTVR) plans specifically cover demerger or return-of-capital situations. In this Insight we identify various demerger situations and the principles that should inform possible approaches for consideration by boards under competing pressures from employees, governance commentators, and buyers of the demerged entity.

Telstra – A Case Study in Misalignment

108

Despite making significant changes and disclosures in a desperate attempt for damage control, Telstra recently received what looks to be a record strike against its Remuneration Report for an ASX 50 company. How could a company so widely held by retail shareholders, self managed super funds and major institutional investors end up in such a position?

Buybacks and Executive Incentives

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Over recent years, many ASX listed companies engaged in share buybacks, and yet little (if any) information has been provided in Remuneration Reports on the implications of such activities on executive incentive plans. We discuss relevant aspects of share buybacks and raises some issues that may warrant consideration by Boards in relation to remuneration governance.

Change-of-Control Provisions

106

Change-of-Control (CoC) provisions are essential in both short term incentive (STI) and long term incentive (LTI) plans. Should the CoC provisions be more prescriptive in documentation on short term incentives? What factors should Boards consider when navigating through stakeholder interests to arrive at a discretionary outcome?

Variable Pay – Victim or Villain

105

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has stirred adverse commentary about the role of variable pay in influencing key management personnel (senior executives and non-executive directors) and others to behave unethically, even criminally. But how valid are these opinions?

BEAR: Concerns with Variable Pay Deferral

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This Insight contains the contents of a letter sent to Mr Wayne Byres, Chairman of the Australian Prudential Regulatory Authority, expressing concern over the variable pay deferral aspects of the BEAR legislation, and the need for it to be amended or clarified via APRA determinations.

Are You Prepared for the BEAR?

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The Banking Executive Accountability Regime (BEAR) is likely to be passed quite soon by Parliament. It will apply to Authorised Deposit-taking Institutions (ADIs) including banks and credit unions and, potentially, insurers and superannuation funds. The legislation is in many respects less than clear, particularly with regards to remuneration. How boards interpret the policies and procedures will affect their exposure to risk of breaching the BEAR requirements.

Does Deferred/Held Equity Give Better Alignment than LTI?

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Some companies appear to be replacing LTI plans by requiring executives to defer a substantial part of their STI earnings into equity that must be retained for several years. We explore the significant defects of this approach, especially via the implementation of Single Incentive Plans (SIPs, sometimes referred to as Total Incentive Plans).

Are STIs Working?

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To settle some recently reprised myths about STI awards, we recently analysed remuneration disclosures from the ASX 300 2016 Remuneration Reports. A lack of understanding by most commentators is made worse by unclear communication and disclosure by some companies. Boards can resolve this public furore by explaining more clearly how incentives are intended to work, and why.

ASX300 Incentive Practices

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This Insight summarises and comments on the incentive practices of companies in the ASX300. The data was extracted from FY16 annual reports. As change in the incentive area tends not to be rapid, companies can be confident that this data is reflective of current practices.

Making LTIs More Relevant to Executives

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The emergence of Total Incentive Plans (TIPs), which resemble STI plans with a deferred element, has spotlit the disengagement of executives who do not fully value the LTI element of their remuneration packages. Here we identify the underlying reasons for this and propose changes to increase their engagement.

Enhanced LTI Disposal Restrictions

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Some CEOs of ASX listed companies have sold LTI shares prior to the disclosure of information that led to declines in their share prices. It seems timely to review deficiencies in the design of LTI plans which allow the sale of LTI shares as soon as they have vested.

Soft Non-Financial Targets for Incentives

90

The increase in the use of “soft” non-financial metrics for senior executive incentive purposes has, unsurprisingly, attracted significant stakeholder backlash. Boards will be required to reassess this practice sooner rather than later to avoid further criticism, negative press and even legislative regulation.

ASX200 Incentive Plan Practices

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We analysed the STI and LTI practices of ASX200 companies for the GRG 2016 Incentives Guide. ASX200 companies employ large numbers of staff, and effectively set the market for remuneration practice, are usually leaders in corporate governance and are sometimes adopters of new practices. Our key findings are relevant to companies of all sizes.