The reason given in the Sep 12 announcement for directors not having “performance hurdles” attached to their options was that this policy was aligned with ASX corporate governance recommendations.
Below are the current ASX Corporate Governance Council guidelines for executive and non-executive director remuneration. The table can be found on p. 33 of the
Corporate Governance Principles and Recommendations 3rd Edition (published in 2014). I’ve highlighted the relevant section. Indeed, it is said in the guidelines that it is acceptable for NEDs to receive equity as part of their remuneration “to align their interests with the interests of other security holders”. It is also recommended that no performance hurdles be attached “as it may lead to bias in their decision-making and compromise their objectivity.”
Yes, God forbid that the Board’s decision-making was ever influenced by thoughts of the impact of Board decisions on the shareprice!
I’ve also provided the
previous ASX Corporate Governance Council guidelines for executive and non-executive director remuneration, contained in the
Corporate Governance Principles and Recommendations 2nd Edition. These guidelines applied before 2014. I’ve highlighted the relevant section.
Yes, you read it right. “Non-executive directors… should not normally participate in schemes designed for the remuneration of executives (and) should not receive options or bonus payments”.
Finally, I draw attention to the recommendation that executive remuneration be "linked to hurdles that are aligned to the entity’s longer-term performance objectives". This suggests that it's fair to assume that the 5.2c shareprice hurdle set for 3 years hence is the Board’s longer-term performance objective for this company(i.e. POH's 3 yr shareprice target).
Isn’t it comforting to have a Board so modest in its assessment of its own talents.
Corporate Governance Principles and Recommendations 3rd Edition
ASX Corporate Governance Council
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GUIDELINES FOR EXECUTIVE REMUNERATION
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GUIDELINES FOR NON-EXECUTIVE DIRECTOR REMUNERATION
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Composition: remuneration packages for executive directors and other senior executives should include an appropriate balance of fixed remuneration and performance-based remuneration.
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Composition: non-executive directors should be remunerated by way of cash fees, superannuation contributions and noncash benefits in lieu of fees (such as salary sacrifice into superannuation or equity).
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Fixed remuneration: should be reasonable and fair, taking into account the entity’s obligations at law and labour market conditions, and should be relative to the scale of the entity’s business. It should reflect core performance requirements and expectations.
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Fixed remuneration: levels of fixed remuneration for nonexecutive directors should reflect the time commitment and responsibilities of the role.
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Performance-based remuneration: should be linked to clearly specified performance targets. These targets should be aligned to the entity’s short and long-term performance objectives and should be appropriate to its circumstances, goals and risk appetite.
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Performance-based remuneration: non-executive directors should not receive performance-based remuneration as it may lead to bias in their decision-making and compromise their objectivity.
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Equity-based remuneration: well-designed equity-based remuneration, including options or performance rights, can be an effective form of remuneration, especially when linked to hurdles that are aligned to the entity’s longer-term performance objectives. Care needs to be taken in the design of equity-based remuneration schemes, however, to ensure that they do not lead to “short-termism” on the part of senior executives or the taking of undue risks.
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Equity-based remuneration: it is generally acceptable for non-executive directors to receive securities as part of their remuneration to align their interests with the interests of other security holders. However, non-executive directors generally should not receive options with performance hurdles attached or performance rights as part of their remuneration as it may lead to bias in their decision-making and compromise their objectivity.
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Termination payments: termination payments, if any, for senior executives should be agreed in advance and the agreement should clearly address what will happen in the case of early termination. There should be no payment for removal for misconduct.
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Termination payments: non-executive directors should not be provided with retirement benefits other than superannuation.
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Corporate Governance Principles and Recommendations with 2010 Amendments 2nd Edition
ASX Corporate Governance Council
Guidelines for executive remuneration packages
Most executive remuneration packages will involve a balance between fixed and incentive pay.Companies may find it useful to consider the following components in formulating packages:
- Fixed remuneration This should be reasonable and fair, taking into account the company’s legal and industrial obligations and labour market conditions, and should be relative to the scale of business. It should reflect core performance requirements and expectations.
- Performance-based remuneration Performance-based remuneration linked to clearly specified performance targets can be an effective tool in promoting the interests of the company and shareholders. Incentive schemes should be designed around appropriate performance benchmarks that measure relative performance and provide rewards for materially improved company performance.
- Equity-based remuneration Appropriately designed equity-based remuneration, including stock options, can be an effective form of remuneration when linked to performance objectives or hurdles. Equity-based remuneration has limitations and can contribute to ‘short-termism’ on the part of senior executives. Accordingly, it is important to design appropriate schemes. The terms of such schemes should clearly prohibit entering into transactions or arrangements which limit the economic risk of participating in unvested entitlements under these schemes. The exercise of any entitlements under these schemes should be timed to coincide with any trading windows under any trading policy established by the company.
- Termination payments Termination payments, if any, for chief executive officers should be agreed in advance, including detailed provisions in case of early termination. There should be no payment for removal for misconduct. Agreements should clearly articulate performance expectations. Companies should consider the consequences of an appointment not working out, and the costs and other impacts of early termination
Guidelines for non-executive director remuneration
Companies may find it useful to consider the following when considering non-executive director remuneration:
- Non-executive directors should normally be remunerated by way of fees, in the form of cash, noncash benefits, superannuation contributions or salary sacrifice into equity; they should not normally participate in schemes designed for the remuneration of executives.
- Non-executive directors should not receive options or bonus payments.
- Non-executive directors should not be provided with retirement benefits other than superannuation.
(20min delay)