Thought leadership from our consultants

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4 ‘rewarding’ activities every company should do now

Like many people, we spent some time in January and February reflecting on our New Year’s resolutions (which of course included exercising more and eating healthier!). Reflecting on our ‘Revolutionising Reward’ event in November 2018 where we brought together executives to explore opportunities with the current reward model, a number of ‘to-dos’ should be front of mind as companies prepare for various management and remuneration committee planning activities.

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Is it time for Reward to be disrupted?

This was the focus of a recent and very robust discussion between some of WA’s top directors and executives, which took place in a private suite overlooking the grounds of Perth’s Optus Stadium.

Game on indeed.

The Revolutionising Reward forums presented by The Reward Practice, sought to challenge traditional thinking around remuneration and performance management, and identify opportunities for organisations to reconsider their frameworks.

Insights that drove the discussion were drawn from work with clients, our ASX300 database of quantitative and qualitative practices, and the recent 2018 Pulse Survey that attracted participation from companies across Australia.

While some of the highlights are presented in the above video link, we would be delighted to discuss with you the full suite of insights and predictions drawn from our research and participant views.

Simply click the link below, complete your details and we will contact you as soon as possible. Alternatively, you can contact us directly on 08 9253 0745.

Forum & Survey Insights

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Should the mining sector rethink executives incentives?

An independent analysis by The Reward Practice which placed ASX 300 annual reports under the spotlight, has shown for the lowest performing companies over 70% of reward incentives were paid to CEOs in metals and mining compared to just 13% for non-mining sectors.

The analysis isolated the top performing and lowest performing companies across all industries, and differentiated the results against the metals and mining companies.

Although the metals and mining sector reported lower than average fixed salary percentage allocations in the bottom performing companies, on closer inspection total executive remuneration (salary and incentives) was largely obtainable over a relatively short period of less than two years and evaluated on mostly ‘hygiene’ measures that do not underpin business growth.

Our research highlights a number of sizable reward payments despite these companies reporting an average shareholder loss of some 21%.

In many cases within the mining sector, CEO rewards include non-financial metrics, such as environment, company culture and safety. The industry is less likely to include a profit gateway, which means rewards can be achieved regardless of the company’s financial performance or position. There is increasing pressure for companies to reconsider their executive remuneration packages.

In one case a CEO received 135% of their STI target against a loss of 12% to shareholders. On closer analysis we see the issue is not merely about the distribution of fixed salary payments and incentives, but also what the rewards are measured and reported against.

A full report is available for download by clicking the below link:

WHY ARE THE FINDINGS IMPORTANT?

The 2012 Corporations Act introduced the ‘two strikes’ rule, whereby shareholder votes against unsatisfactory remuneration reports can enact serious consequences on the company. Together with the Hon Scott Morrison’s recent Banking Executive Accountability Regime (BEAR) provision to defer bonus payments in the major banks by four years, and a number of media reports highlighting highly paid executives, the spotlight is on company boards to demonstrate stronger performance alignment in their remuneration packages. More shareholders are using their voting power to influence decisions on CEO and executive remuneration.

Based on information drawn from the analysis, evidence exists that a number of top tier organisations are embracing or taking steps to adjust ‘homogenous’ methodologies and move towards a more tailored structure aligned with the business. However, the metals and mining sectors in the mid to lower tiers have been slow to act in this space and we believe boards need to plan ahead and determine the remuneration strategy well before the performance year commences.

For more information contact Warren Land on warren.land@therewardpractice.com.au or 0412 774 206.

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How clean are your Remuneration Report windows?

The lead up to the annual reporting season presents a valuable opportunity for companies to review their executive remuneration programs and disclosures. Reviewing these policies may help avoid a strike (and possible board spill), but is also essential to ensure they are relevant, competitive and add value to the organisation. Directors owe broad fiduciary responsibilities to companies they serve, particularly under the Corporations Act 2001 and the common law. This duty extends to the remuneration of Key Management Personnel, ensuring it is in the best interests of the company.

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Designing employee incentives for ROI

Arguably the most common and effective approach to variable pay is an incentive scheme that defines performance goals and what potential earnings are on offer should the goals be met. The performance goals can be individual objectives, team or company wide. The period over which performance is measured is typically annual however can be shorter such as monthly, quarterly.

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