Please explain, ASIC urges execs

THE CORPORATE watchdog has called on listed companies to provide investors with clearer information about how their executives and directors are paid.

By InvestSMART · 1 Jul 2011

By InvestSMART ·
1 Jul 2011

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THE CORPORATE watchdog has called on listed companies to provide investors with clearer information about how their executives and directors are paid.

With the annual reporting season looming, Australian Securities and Investments Commission deputy chairman Belinda Gibson yesterday provided companies with examples of how to clean up their act.

While ASIC has not disclosed where it found its examples of "better disclosure", the text quoted in the advisory is drawn from reports filed by companies including Pacific Brands, Qantas, Brambles and St Barbara. Ms Gibson said companies needed "more effective" disclosure of policy regarding remuneration of key management personnel, non-financial conditions in short-term incentive plans, the reasons why performance conditions were chosen and the terms and conditions of incentive plans.

Yesterday's advisory follows an ASIC review of 60 remuneration reports filed by listed companies last year that Ms Gibson said acted as a "health check".

"We encourage company directors to prepare this year's reports with the overriding objective in mind of explaining the relationship that exists between the company's performance and the remuneration of its executives," she said.

On the remuneration of key managers, ASIC said "many companies outlined the board's policy in very broad terms and did not distinguish between the nature of remuneration and the amount of remuneration".

Companies should explain the factors considered by the board and how pay deals aimed to influence executive behaviour, ASIC said. Companies should give more information about non-financial, short-term goals such as safety, including why they were chosen. And the terms of cash bonuses and share issues to executives should also be disclosed, including the conditions under which boards could grant bonuses or shares.

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Frequently Asked Questions about this Article…

What did ASIC tell listed companies about executive pay disclosure?

ASIC urged listed companies to give investors clearer, more effective disclosure about how executives and directors are paid. The corporate regulator asked companies to explain remuneration policy, non‑financial short‑term incentives, reasons for chosen performance conditions, and the full terms and conditions of incentive plans.

Why does clearer remuneration reporting matter for everyday investors?

Clearer remuneration reporting helps investors understand the link between company performance and executive pay. ASIC said directors should prepare reports that explain how pay arrangements are intended to influence executive behaviour and how those arrangements relate to company outcomes.

What did ASIC find when it reviewed remuneration reports last year?

ASIC carried out a review of 60 remuneration reports filed by listed companies last year. Deputy chair Belinda Gibson described the exercise as a 'health check' and used the findings to provide examples of better disclosure ahead of the annual reporting season.

Which companies’ reports did ASIC use as examples of better disclosure?

Although ASIC didn’t name where every example came from, the advisory quoted text drawn from reports filed by companies including Pacific Brands, Qantas, Brambles and St Barbara as examples of clearer disclosure.

What should companies explain about non-financial short‑term incentive goals?

ASIC said companies should provide more detail about non‑financial, short‑term goals — such as safety — including why those goals were chosen and how they form part of executive incentive schemes.

How much detail should companies give about performance conditions in incentive plans?

Companies should explain the reasons why particular performance conditions were chosen and set out the specific terms and conditions of incentive plans. ASIC emphasised that disclosure should distinguish between the nature of remuneration and the amounts paid.

What information should be disclosed about cash bonuses and share issues to executives?

ASIC recommended that companies disclose the terms of cash bonuses and share issues to executives, including the conditions under which boards could grant bonuses or shares, so investors can see how incentives are structured and applied.

What did ASIC ask boards to describe about their pay‑setting decisions?

ASIC asked boards to explain the factors they considered when setting pay, how pay deals aim to influence executive behaviour, and how executive remuneration connects to the company’s performance — all to give investors a clearer picture of pay governance.