Shareholder activism is changing the corporate approach to executive remuneration, says global consulting firm Mercer in its report on executive remuneration trends.
“Increased shareholder activism and a desire for more corporate governance are driving changes in multi-national executive remuneration,” says Mercer. This has been identified as the single biggest executive remuneration trend in 2012.
A wholly-owned subsidiary of Marsh & McLennan Companies, Mercer advises Remuneration Committees on Executive Pay issues.
Pressure from shareholders is creating a ‘domino effect’, says Mercer, pushing regulators and legislators into faster and deeper involvement in Executive Remuneration issues. The Mercer report reveals that performance remains a priority focus and is being tied ever closer to all elements of reward.
For companies in the Asia-Pacific region where executive remuneration committees are less well developed, governance and accountability have been the main trends effecting executive remuneration.
“Regulatory changes are occurring,” said Hans Kothuis, Principal in Mercer’s Executive Rewards team in Hong Kong “not as a result of the financial crisis, but largely because of the wider recognition that a more supportive infrastructure and governance regime is required to support the ‘Asian century’.”
In Hong Kong, there are updated listing rules on corporate governance while Singapore has issued enhanced disclosure requirements. The Reserve Bank of India has come out with new guidelines on remuneration in banks.
In Australia, new rules mean that two negative votes in an annual general meeting (AGM) can result in a board spill, meaning that executives must resign and seek re-election.
Listed companies in Asia are increasingly taking action towards more transparent communication with shareholders: they are explaining more clearly the rationale for their pay decisions and are providing more information on incentive plans.”
In the North American region, the introduction of the US say-on-pay rules in 2011, have encouraged greater transparency and shareholder communication. They have also accelerated further long-term incentives (LTI) plans designed with performance-based vesting conditions. There is increased scrutiny of LTIs conditions while Compensation Committees, noting the current sentiment, are showing restraint on awards.
Further, in 2012-2013 the Dodd-Frank Act, containing rules on how to address pay for performance, remuneration and internal pay equity, will come into force. Besides, these investor groups continue to exert a strong influence on pay discussions.
In Canada, most organisations are not considering making big changes to their executive compensation programmes since many have implemented such changes since the financial crisis of 2008.
Companies in the UK, Switzerland, the Netherlands, Germany, Italy and Ireland have all been on the receiving end of votes against their executive compensation proposals.
Pay freezes remain common in countries such as Spain, Greece and Italy. There is a vocal shareholder revolution taking place and the UK Government and the EU are using this to reform practices, the report says.
While in South America, currency appreciation in the region means that the relative cost of employees is growing in US dollar. Bonus payments are growing and are extending to lower employee levels. Salary increases are broadly outpacing inflation except in high inflation countries.
LTI programmes are growing in prevalence, eligibility and award amounts and now include a mix of stock options, restricted stock and deferred cash.