Matt Christensen
Executive remuneration remained a hot topic in 2017/18, as shareholders continued to call for improved disclosure around variable pay targets and performance, according to AXA Investment Managers (AXA IM).
Remuneration accounted for 68% of AXA IM’s votes against management in Australia, compared to 42% in the Eurozone, 26% in Asia-Pacific and 24% in North America, figures from AXA IM’s 2017/18 Responsible Investment and Stewardship Report show1.
Matt Christensen, Global Head of Responsible Investment, said market disclosure around executive remuneration in Australian companies continued to lag other more developed markets.
“This opaqueness makes it difficult for shareholders to visualise a clear line of sight between executive reward and company performance, to ensure that executives are not unduly rewarded for performance that does not align with shareholder wealth outcomes,” he said.
Mr Christensen said the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry was helping to highlight the issue of executive remuneration in Australia.
“When looking at examples such as the recent $700 million fine Commonwealth Bank received for money laundering and terror financing breaches, it would be difficult for companies to justify how executive pay would continue to pay out substantially while shareholders foot the bill for executive mismanagement at the top,” he said.
According to Craig Hurt, Head of Australia and New Zealand, AXA IM, professional managers need to provide greater guidance and better strategies so that investors can avoid inadvertently rewarding a lack of transparency.
“Australian investors are increasingly sensitive to corporate behaviour when thinking about where to invest their retirement savings”, said Mr Hurt. “However, it is difficult for individuals to identify discrepancies in things such as executive remuneration and disclosure. The AXA IM Sustainable Equity Fund actively takes into account such issues when assessing companies in which to invest. The fund is certified by the Responsible Investment Association Australasia.”
A global shift
Globally, attention has moved away from a sole focus on aligning executive rewards with share price performance, to a focus on how executive remuneration aligns with the general workforce and social expectations.
Some of the reforms recently undertaken include the publication of gender pay gaps in the UK and the Dodd-Frank requirements to disclose CEO pay to median pay in the US, which have revealed some extreme pay differentials.
Mr Christensen said, “AXA IM is always supportive of reforms that require improved and increased disclosure in markets, allowing shareholders further clarity and better oversight of the companies in which they invest.”
“However, it remains to be seen whether these reforms will lead to long-term shifts in the way boards and companies think about executive pay and reward.”
Continued activism
As a responsible investor, AXA IM incorporates environmental, social and governance (ESG) issues into its investment decision-making process and also holds companies to account by engaging with management and voting at shareholder meetings.
Of the 147 Australian meetings voted on in 2017, AXA IM voted against management recommendations at 26 meetings (18%).
During the 2017 AGM season, AXA IM championed the need for additional independent voices on the board at Ramsay Health Care.
Mr Christensen said AXA IM would continue to push companies globally to improve their remuneration disclosure practices.
“Where it becomes difficult for us to decipher how or to what extent an executive is being rewarded for meeting certain performance criteria or where we feel that performance criteria do not reflect the key performance indicators of the business, we would not hesitate to voice our discontent and take further steps,” he said.
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