Investors target executive bonuses as AGMs fire up
Bonuses are in the spotlight this week as big shareholders and their advisers prepare to take several top-listed companies to task over executive pay at their annual meetings.
Of concern are bonuses paid to executives who fail to reach financial targets but reach other criteria such as improving employee satisfaction.
As the shareholder voting season gets into full swing, advisers are recommending "no" votes on remuneration packages that fail to reflect a company's performance.
Bradken, McMillan Shakespeare and Brambles will face shareholders on Tuesday at annual meetings. AGL, Toll Holdings, Newcrest and Pacific Brands will hold their annual meetings later in the week.
ISS executive director Ulysses Chioatto said his firm was advising shareholders to vote against bonuses based on "non-financial" performance criteria that were vague or too easily awarded.
Non-financial performance criteria could include anything from lifting a company's health and safety record to improving employee or customer satisfaction, he said.
If executives fail to reach financial targets for bonuses, they may still be eligible for non-financial bonuses. "There are going to be situations where the company has poor performance but bonuses still get paid out on non-financial bonus criteria," he said. "If you've set those criteria loosely, you can pretty much get a free kick."
Mr Chioatto said non-financial performance criteria were often based on benchmarks that were hard to qualify, such as improving the culture of a company.
"They are wild and woolly statements," he said. "Unless the criteria are very robust, you can find situations where the company has done very badly financially, but amazingly executives get 100 per cent in non-financial performance."
CGI Glass Lewis director Aaron Bertinetti said non-financial bonus criteria were also a focus for its recommendations this year.
He said it was common for companies to pay a bonus based on non-financial criteria if a financial bonus was withheld. "It certainly provides a route towards a bonus that wouldn't be provided [otherwise]."
He said non-financial performance criteria were often descriptive and hard to measure. "The problem is we don't actually know what the list of priorities is and what's being targeted."
Corporate governance issues will take the stage this week, as mining services company Bradken prepares to face shareholders on Tuesday for the first time since the Federal Court found it had engaged in bid-rigging. The company is appealing the decision.
"The judgment has raised some corporate governance issues, which we would be looking to Bradken to address," Australian Shareholders Association chairman Ian Curry said.
Car fleet company McMillan Shakespeare will also face shareholders for the first time since the proposed changes to the fringe benefits tax by the former Labor government. "They're obliged to make some pretty full statements," Mr Curry said.