ASIC identified its key concerns for 2011 remuneration
As companies prepare for the release of their 30 June 2011
financial reports, ASIC has identified three areas for improvement
in this year's remuneration reports:
the board's policy on the nature and amount of remuneration
of the key management personnel
performance conditions in incentive plans;
the terms and conditions of incentive plans.
This follows the Commission's review of 60 remuneration
reports from 2010.
As well as identifying where reports could be improved, ASIC has
provided real-life extracts from reports which have, in its view,
provided "better disclosure". The underlying objective is
to enable shareholders to understand the nature of KMP remuneration
(including performance hurdles) and the relationship between
performance and remuneration.
Remuneration of key management personnel
The remuneration report must disclose the board's policy for
determining the nature and amount of KMP remuneration.
The main failing here, in ASIC's view, is that many
companies outline the policy in very broad terms and do not
distinguish between the nature and the
amount of the remuneration.
Going further, it lauded reports which provided information
factors considered by the board when setting the amount and/or
the nature of remuneration
the level at which remuneration is set, relative to the market
or a comparator group (along with information on that comparator
Non-financial performance conditions
ASIC identified three problems in the disclosure of
non-financial performance conditions in short-term incentive
where the incentive was subject to both financial and
non-financial performance conditions, there was often less
information about the non-financial than the financial
non-financial performance conditions were sometimes identified
in such broad terms that it was difficult to see what outcomes they
were intended to achieve;
targets were not always disclosed (for both financial and
Another disparity between financial and non-financial
performance conditions was that, although companies generally
explained why particular financial conditions had been chosen, they
sometimes did not explain why non-financial conditions had been
ASIC had two areas of concern in relation to the disclosure of
the terms and conditions attaching to cash bonuses, performance
bonuses and share-based compensation.
The first was that, although the Corporations Regulations
provide a list of disclosable terms and conditions, that list is
not exhaustive. ASIC cautions that terms and conditions which are
material to a shareholder's understanding of the remuneration
arrangements should be disclosed even if they are not on the
The second concern related to benefits that are subject to the
discretion of the board. ASIC says that companies should consider
disclosing any conditions which govern the discretion (such as a
change of control or termination of employment).
The report and examples
The report – incorporating the best practice examples
chosen by ASIC – is available
1. "Key management personnel" is defined in
AASB 124 as "those persons having authority and responsibility
for planning, directing and controlling the activities of the
entity, directly or indirectly, including any director (whether
executive or otherwise) of that entity."
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