Proxy Season Check-In

The COVID-19 crisis has brought with it a multitude of challenges around AGMs and FY2020 reporting for ASX-listed boards. Challenges have included the shift to virtual AGMs, an increase in shareholder environmental and social activism, and perhaps most universal of all - the dilemmas around the application of board discretion on executive payouts, and remuneration restructuring and target-setting for FY2021.  

The two largest proxy advisory firms in Australia, ISS and CGI Glass Lewis, can impact between 20 – 50% of issued share capital on any given ASX300 company register. Their influence is often enough to sway a vote, resulting in remuneration strikes, non-board endorsed directors being elected, and high level of support for shareholder resolutions. Given their influence, it is imperative that listed companies are aware of the key themes and potential areas of concern proxy advisors focus on when providing their recommendations.  

With the 2020 annual general meeting (AGM) season well underway, it is certainly turning into an interesting and eventful one. Although it appears that proxy advisors are not supporting as many shareholder resolutions as they were in the past, we have certainly seen an uptick in the number of ‘against’ recommendations, particularly in relation to remuneration resolutions.  

We are already witnessing boards struggling to garner support for their remuneration outcomes and structures, with some reaching dissent to the north of 40%. The most common reasons for a negative recommendation issued by a proxy advisor over the past two months include:
  • Boards applying discretion to ‘fix up’ executive pay when targets have not been achieved due to the drop in share price.  
  • Generous executive payouts when a company’s employees have been stood down, or where a company has received government relief payments. Some proxy advisors expressed a view that government payouts should not be used to ‘prop up’ executive bonuses. As such, the likelihood of an against recommendation is significantly higher for companies that received government help and paid executive bonuses.  
  • STI payments made for achievements of non-financial targets without a reasonable discount to the STI opportunity.  
  • Option-like structures that would result in high payouts for simply restoring the share price to pre-COVID levels.  
  • Higher weightings towards non-financial metrics in the STI and LTI that are not disclosed transparently. These metrics may be considered as ‘day job’ duties for executives (e.g. employee engagement, customer satisfaction, environmental strategy).  

For Glass Lewis' approach to remuneration in light of COVID-19, please click here

For ISS Policy Guidance on Impact of the COVID-19 Pandemic, please click here

For ACSI’s media release titled Board Restraint on CEO Pay to be Tested during Pandemic, please click here