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Friday 12 June 2020

20-133MR Info sheet 245: Board oversight and discretion in executive variable pay schemes

In 2019, ASIC conducted a targeted review of board oversight of variable remuneration schemes. The review covered 21 ASX listed companies across seven industry sectors and collectively representing $738 billion in market capitalisation (as at 10 June 2020).

The review was designed, among other things, to:

  • identify ‘good’ and ‘poor’ practices in making decisions about variable remuneration;
  • raise governance standards to make executives more accountable for their actions; and
  • reduce the risk of failure, reputational harm and loss resulting from poorly overseen variable remuneration outcomes.

ASIC was preparing a detailed report on its findings when the COVID-19 pandemic required a recalibration of our  priorities (refer: 20-086MR). It is now intended that the final report will be released later in 2020.

ASIC has proceeded to provide entity specific observations and findings directly to the 21 entities that were subject of the review.

In addition, ASIC has decided to release this information sheet drawing on the review’s factual findings and framed to assist the boards and remuneration committees of other listed companies to navigate decisions on executive variable pay in the challenging context of COVID-19. 

Information Sheet 245 Board oversight of executive variable pay decisions during the COVID-19 pandemic (INFO 245) focuses on:

  • the importance of a robust remuneration governance framework, especially to ensure informed decision making; and
  • specific factors to consider when exercising discretion on executive variable pay in the current environment.   

This follows feedback from representatives of large, listed companies (not subject to the review) that it would be valuable to understand some of the key findings and observations made in the course of conducting the review. This was felt to be particularly useful in the current challenging circumstances.

‘It’s now widely acknowledged that it’s important the governance practices around awarding variable remuneration are aligned with the long-term interests of a company and its stakeholders’, said Deputy Chair Karen Chester.

‘Getting this right is incredibly challenging. But there are key principles which can guide these difficult judgments and we have identified some important ones through this work and hope sharing them more broadly at this time may assist in real time board and remuneration committee deliberations.'

Background

This review is one of two governance focussed supervisory reviews undertaken by ASIC (the first being ASIC’s review of oversight of non-financial risk) following the establishment of our Corporate Governance Taskforce in late 2018 – a policy initiative of the Federal Government to establish a dedicated taskforce to conduct a proactive, targeted and thematic reviews into corporate governance in large listed companies.

ASIC’s enhanced supervisory program aims to deter misconduct and improve governance and accountability within large listed companies. This work also meets ASIC’s legislative responsibility to:

  • promote market integrity and consumer protection in the Australian financial system
  • regulate directors’ and officers’ duties.
Last updated: 12/06/2020 10:33