After a fairly benign AGM season in 2022, ASX300 companies have experienced an unprecedented surge in shareholder ‘no votes’ during 2023, with a record-breaking 13% receiving strikes on their remuneration report and an additional 13% narrowly avoiding the same fate. Certain sectors were particularly impacted feeling the wrath of disgruntled shareholders including Healthcare, Information Technology, and Utilities.

A total of 34 companies received a “strike” (greater than 25% of eligible shareholders voting against).  A further 32 companies received a “near miss” (between 15% to 25% of eligible shareholders voting against), meaning more than one in four of ASX300 AGMs resulted in greater than 15% of eligible shareholders voting against the Remuneration Report.  These voting statistics indicate the lowest level of support for Remuneration Reports since the “two strikes rule” was introduced in 2011.

 

Broader Themes This Year:

Amidst the surge in record no votes among ASX300 companies in 2023, investor concerns are broadening their lens of what defines appropriate company performance. Companies faced strikes due to factors including individual project performance, the absence of marketable products, deficiencies in succession planning, and challenging market conditions. This nuanced evaluation by investors reflects scrutiny extending beyond traditional metrics, emphasising the growing requirement for companies to demonstrate excellence in various aspects of corporate strategy and performance. The diversification of reasons behind shareholder concerns further underscores the evolving landscape of investor engagement and governance expectations.

 

But…The Usual Suspects:

Amid this wave of shareholder activism, traditional themes of concern continued to underpin the voting. Pay and performance misalignment, a lack of perceived stretch in measures and targets, and protest votes against board and company performance have emerged as common themes. Shareholders are increasingly vocal about ensuring that executive remuneration is directly tied to performance metrics that truly reflect the company’s progress and success.

 

Big ‘No Votes’ Send Clear Message to Big Names:

An unprecedented 12 companies in the ASX300 were on the receiving end of substantial ‘no votes’ from over half of their shareholders. Notable names with significant shareholder dissent included Qantas (83% ‘no vote’), Harvey Norman (82% ‘no vote’) and Elders (63% ‘no vote’). Other ‘strike’ recipients included Fortescue (52% ‘no vote’ citing concerns over quantum of remuneration paid to former key management) and Woolworths (28% ‘no vote’ linked to executives receiving their incentives despite the death of two staff in the last 12 months).

 

Sectoral Disparities:

Within the ASX300, the various sectors have faced distinct challenges. Healthcare, Information Technology, and Utilities sectors have been particularly susceptible to shareholder dissatisfaction.

Industrials also took a significant hit, with close to a third of the companies receiving a no vote greater than 15%. This was exemplified by Qantas, where shareholders expressed dissatisfaction with outgoing executives’ incentives and the company’s involvement in reputation-damaging controversies. Meanwhile, NRW Holdings, also in the industrials sector, recorded its sixth consecutive strike with concerns over CEO’s pay. In contrast, the Materials sector performed partially better, with 18% of companies receiving a near miss or a strike.

 

The surge in strikes among ASX300 companies in 2023 signals a seismic shift in corporate governance dynamics. Shareholders are flexing their muscles, demanding greater accountability, transparency, and alignment between performance and executive remuneration.

As the 2023 AGM season is now in full swing, we are tracking shareholder voting on the Remuneration Report for ASX300 companies. To date, a total of 94 ASX300 companies have had shareholders vote on their Remuneration Report.  Figure 1 below shows a year on year comparison of the percentage of ASX300 companies which have received a “strike” (greater than 25% of eligible shareholders voting against) or a “near miss” (between 15% to 25% of eligible shareholders voting against) on their Remuneration Report.  The results to date indicate a reasonable uptick in the number of “strikes” after the strong support received in Remuneration Report voting in 2022.

 

Figure 1. Voting outcomes in 2023 to date compared to prior years

The prevailing focal points for “strikes” on Remuneration Reports in the early stages of the AGM season so far revolve primarily around board discretion, generous incentives and poor remuneration report disclosure. These key themes reflect the ongoing challenges associated with aligning performance, remuneration outcomes, and shareholder expectations. Some examples include:

• Nufarm Limited (47% no vote): Shareholders expressed dissatisfaction with the board’s chosen pay incentive strategies, such as granting a $2.43 million cash Short-Term Incentive (STI) to the Managing Director.
• AMP Limited (49% no vote): Shareholders expressed discontent with the transparency of the short-term incentive targets and found the board’s discretionary award of substantial incentives to be unwarranted, particularly in light of the company’s share price performance.
• ALS Limited (28% no vote): Shareholders deemed the retention payments granted to two senior executives to be unjustified and excessively generous.
• Treasury Wine Estates Limited (46% no vote): Shareholders expressed displeasure with the board’s exercise of discretion, allowing the vesting of long-term incentives even when certain financial targets were not achieved.

Other examples include:

• BrainChip Holdings Limited (52% no vote): A protest vote was registered due to the company’s performance. As the chairman articulated, the company has not yet achieved any substantial progress in terms of generating revenue.
• Atlas Arteria Holdings Limited (51% no vote): A protest vote was cast in opposition to the company’s acquisition of a two-thirds stake in the Chicago Skyway motorway. Shareholders expressed dissatisfaction with the necessary equity raise for this transaction and regarded the acquisition as being made at a price higher than the prevailing market rates.
• Perenti Limited (33% no vote): Although Perenti delivered healthy returns to its shareholders, it received a strike due to apprehensions about safety precautions.

We will continue to provide updates as the majority of AGMs are held over the next month.

Once again we have undertaken research to understand what subsequent actions (if any) have been taken by ASX300 Companies which received a ‘strike’ on their Remuneration Report in 2022.

Of the 16 companies who received a strike last year, 13 (81%) made changes to address either some or all of the concerns raised by shareholders and / or proxy advisor groups. The remaining 2 companies have not indicated any changes in response to the shareholder concerns (Dicker Data Limited and Lovisa Holdings). Note it is a requirement under the Corporations Act 2001 that the company’s remuneration report include either a description of the actions the board intends to take in response to a ‘strike’ or an explanation of the reasons for taking no action.

Strike Responses Tracker

Unlike prior years, company responses to ‘strikes’ in 2022 comprised of multiple changes (up to four) to address shareholder concerns (perceived or known).  As an example, to strengthen performance and reward alignment, changes were made to performance measures and weighting, introduction of minimum shareholding requirements, and the addition of gateways (e.g., EPS, TSR) in long-term incentive plans.  Companies also enhanced transparency in their remuneration practices by providing additional disclosure of group-level targets, principles for applying discretion, and detailed information regarding key performance indicators (KPIs).

The chart below shows the three most common response themes adopted by companies to the ‘strike’ on their Remuneration Report.

 

Examples of the responses include:

1. Change to variable pay structure: change in weighting (Newcrest Mining Ltd increasing the weighting of relative TSR from 33% to 50% and reducing the weighting of both ‘Return on Capital Employed’ and ‘Comparative Cost’ from 33% to 25%), increasing the LTI performance period (Corporate Travel Management Ltd from 2 years to 3 years), the replacement of Options with Restricted Stock Units or Performance Rights (Imugene Ltd).
2. Change to disclosure: providing additional disclosure on group level targets (Downer EDI Ltd), adding more details regarding the STI plan (Lake Resources NL) and including more detailed information in relation to Executive KMP performance (Link Administration Holdings Ltd).
3. Change to quantum: reducing the Non-Executive Director base and committee fees (The Star Entertainment Group Ltd), reducing the quantum of LTI awards by 10% (Goodman Group), setting the fixed remuneration of the new CEO lower than the predecessor’s (Downer EDI Ltd).

*What is a strike? If a company’s remuneration report outlining salary and incentives of key management personnel (KMP) receives a ‘no’ vote of 25% or greater from shareholders at the annual general meeting, the company receives a first ‘strike’. If the following year’s remuneration report also receives a ‘no’ vote of 25% or more, the company receives a second ‘strike’. When a second ‘strike’ occurs, shareholders vote then and there to decide whether company directors must stand for re-election. This is known as a ‘spill’ vote. If the spill vote passes (i.e., 50% or more of eligible votes cast), a spill meeting is held within 90 days and the directors stand for re-election. See our blog “10 Years On Does The 2 Strikes Law Really Matter?” for more information.