More Corps Act Amendments Re: KMP Remuneration

On 14 December 2012 the Government released a series of draft changes to the Corporation Act relating to key management personnel (KMP) remuneration for public comment. These changes are intended to implement many of the recommendations of the Corporations and Markets Advisory Committee (CAMAC) in its 2011 inquiry into executive remuneration in Australia. These proposed changes are intended to come into effect for financial years commencing on or after 1 July 2013 and will only apply to listed companies. Briefly these changes relate to:

• Disclosures required in relation to “clawback” of overpaid remuneration when company accounts have been found within the prior three financial years to have been material misstated, including a requirement to disclose the policy in these circumstances,
• Remuneration Reports content changes including disclosure of:
• a general description of their remuneration governance framework,
• the number of lapsed options and the year in which the lapsed options were granted, rather than the value of the options,
• all payments made to KMP in connection with a retirement from the company, and
• details of “present pay”, “future pay” and “past pay”.

Comments on the proposed changes may be submitted up to 15 March 2013.

The Explanatory Memorandum expands on the foregoing points but uses terms that often seem inappropriate. GRG intends to make a submission on the proposed changes.

Copies of the proposed legislative changes and the Explanatory Memorandum may be accessed at: http://www.treasury.gov.au/ConsultationsandReviews/Submissions/2012/Improving-disclosure-requirements

ACSI Paper on CEO Pay in the Top 100 Companies: 2011

The Australia Council of Superannuation Investors (ACSI) released in September 2012, a research paper (the Paper) which appears to have been prepared for ACSI by Ownership Matters Pty Limited.  The Paper was titled “CEO Pay in the Top 100 Companies: 2011”.

GRG is undertaking a detailed analysis of the material in the Paper as on a preliminary reading it appears to be based on approaches that are not consistent with sound statistical principles.  Thus, any conclusions that appear in the paper should be viewed with scepticism.  Further, there appears to be no attempt to explain the composition of the sample group of companies which is based on companies in the S&P/ASX200 or how that group of companies has changed over the 10 years for which comparative figures are presented and analysed.  It covers a wide range of companies in terms of industries covered and sizes as measured by either market capitalisation or revenue.  GRG research evidences that there is a strong correlation between company size as measured by market capitalisation or revenue and the amount of pay received by executives including CEOs.  The research appears to ignore this significant variable in the analysis.

We are also checking some of the data as it appears that some bias or cherry-picking may be present which has contributed to the headlines which have been picked up by the news media. 

We urge readers to exercise caution in drawing conclusions from this paper which may be being used to fuel an undisclosed agenda.

Update: Taxation of Premium Exercise Price Options (PEPOs)

PEPOs are used by some companies by applying a sufficient premium to produce a nil value for employee share scheme (ESS) taxing purposes when the taxation valuation approach available under the Regulations is applied.  When such PEPOs are not at risk of forfeiture they are taxable at grant under the ESS taxing provisions on a nil value. 

In a new release by the Australian Taxation Office (ATO) – ATO ID 2012/68 - it accepts nil taxable value for the employee under the ESS taxing provisions but finds that the market value of the PEPOs is taxable for fringe benefits tax (FBT) purposes to the company.  This arises because the ESS option valuation method in the Regulation does not apply for FBT purposes and therefore another method needs to be used.  Other valuation methods would attribute a market value to the PEPOs and therefore the company would be liable for FBT on the grant in the year of the grant.

PEPOs which have a taxable value for ESS taxing purposes are not liable for FBT no matter how small the ESS taxable value.

Companies using PEPOs need to be aware of their potential FBT liability and should review the premium attached to future grants of PEPOs. 

2012 GRG Guide Publications Released - We have recently launched the new 2012 publications or "Guides" as they will be known going forward. We have forged three offerings all of which now contain both executive and NED KMP information in the same document. We are also now distrubuting these electronically under a licencing system that allows you to forward the material internally rather than needing to purchase multiple copies. We can usually deliver a customised, licensed report based on All Industries, Industrial & Services or Resources cuts within 24-48 hours. Click on the link on our home page to find out more: http://www.godfreyremuneration.com//remuneration_guides/index.html

New GRG Publications/Guides to be finalised this week - Thanks to everyone who has been enquiring about the availability of the new GRG publications, now called the "Guides". This year we have taken a bit longer in order redesign our offerings and enter all the December Annual Reports for use in the publication, which is something that our new systems have enabled us to achieve. Previously we were only able to enter reports released up until September. This makes our publications a true full 2011 publication, unlike anything else on the market.

We have also redesigned the publications/guides so that all versions contain both NED and Executive KMP data in a customised form that is most relevant to the purchaser. We have also moved to licensing and electronic distribution so that multiple copies do not need to be purchased for the same organisation.

We do apologise for the delays, we have just been putting finishing touches on the reports in the last few days and we expect they will be availalbe by the end of this week. If you have already sent us orders you should receive your copy early next week. For everyone else, orders received next week will be actioned immediately.

Next year it would be expected that the reports will be available very soon after the majority of December reports are realeased (April this year), as all our systems will be bedded down after this year.

Welcome to our new blog!

As we launching our new website at www.godfreyremuneration.com this week, we also take the opportunity to create a blog which keeps you in touch with our perspectives on developments in the areas of Executive and NED KMP remuneration.

We look forward to engaging with you not only in this useful medium but in any other way we can be of assistance.