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Investors plan protest votes on CEO pay

AAP logoAAP 9/10/2016 Prashant Mehra

As the annual general meeting season kicks off in earnest, fund managers and proxy shareholder firms are gearing up to make themselves heard - largely through protest votes against executive bonuses.

Proxy firms advise super funds and other institutional shareholders on voting at company meetings, and last month gave notice of their intention after helping deliver a first "strike" - or a no vote of more than 25 per cent - against the adoption of AGL Energy's remuneration report.

Insurer Suncorp also faced a a shareholder push against its executive pay, with about 10 per cent voting against adopting the remuneration report.

"Because there is increasing scrutiny, we are seeing many companies awarding a greater percentage of bonuses on the basis of softball targets to stay within the guidelines," says Australian Shareholder Association (ASA) director Allan Goldin.

"These are highly paid senior executives who are being given easy top-ups of 'at-risk' money."

Chief executives increasingly receive bonuses based on qualitative and non-financial metrics such as team effectiveness, service experience and diversity targets, proxy firms say. Not only is it difficult to measure outcomes against these targets, they are also generally unaligned to shareholders interests.

The investor backlash against executive pay comes at a time when a number of large companies have seen profitability slide amid a commodities downturn and consumer caution, resulting in a sharp cut in dividends.

Shareholders, naturally, tend to question any major pay increases for company management.

"When things are going well it is easy for managements to justify big bonuses. But in leaner times, there tends to be a slight detachment in explaining when performance is not up to mark," says Julian Beaumont, investment director at fund manager Bennelong Australian Equity Partners.

Mr Beaumont says as a fund manager, he prefers to first speak to a company if it finds their remuneration policy contentious. But if necessary, BAEP has a healthy record of voting against resolutions at AGMs, he adds.

Shareholder votes on remuneration reports are non-binding, but two "strikes" - two consecutive years where more than a quarter of votes go against the report - can trigger a vote for a spill of a company's board.

Last year, more than 100 ASX listed companies earned a first "strike" against their remuneration reports. They are at risk of a potential board spill if they receive a second warning this year.

ASA says it is separately trying to establish the exact take-home pay for CEOs of ASX200 companies, as this figure is often quite different to the statutory pay declared in annual reports.

Another issue that proxy firms are focusing on this year is the performance of board members.

Some directors, who sit on the boards of multiple ASX-listed companies, seem to have too big a workload. Shareholders are also increasingly asking boards to pay attention to a director's performance in other companies.

As shareholders come to meetings armed with clear views on a number of issues, company directors can expect no respite over the next two months.

"There will be higher protest votes this year than ever before," Mr Goldin promises.

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