Stewardship Activity Report: Q4 2017
We were surprised to see an increase in companies utilizing a re-test feature or provision in their remuneration structure despite our ongoing concerns with this practice. A re-test feature essentially offers executives multiple opportunities to earn pay-outs, even if they fail to achieve performance targets over a specified period. SSGA believes that this practice allows for possible pay-for-performance misalignment and incentivizes management to make risky decisions that will have high payoffs in order to meet aggressive targets over a short time period. In 2017, SSGA voted against 38 remuneration plans due to the presence of a re-test provision, up from 33 in 2016. In certain cases, we saw companies try to win investor approval by coupling positive changes, such as diversification of long-term performance metrics, to the introduction of a re-test provision. However, we do not see changes such as adding or increasing performance-based components in long-term incentive plans as mitigating our concerns with re-testing provisions. Despite the increase in against votes, we continue to track some success from engagement. Both BlueScope Steel and Woodside Petroleum removed re-testing provisions from future plans and two more companies committed to removing the re-testing feature from their remuneration plans during our engagement.
This report provides a review of the recent Australia proxy season, discusses proxy plumbing issues exposed by a high profile proxy contest, and introduces our 2018 sector and thematic priorities.
Australia Proxy Season Review
During the course of 2017 SSGA engaged with 35 Australian companies and manually reviewed 288 or 61% of the 472 shareholder meetings voted. We have been encouraged by developments such as improving board diversity and thoughtful approaches to climate risk disclosure. At the same time we are concerned about remuneration programs becoming short-term focused and the persistence of re-testing.
Improvements in Board Diversity
Australia is one of the three markets SSGA focused on in connection with the Fearless Girl Campaign launched in Q1 2017. Over the course of the year 42% of the ASX 300 companies without a single woman on their board either added one or committed to do so.
- We identified 45 Australian companies that lacked a single female board director of which 11 companies added a woman and eight companies have committed to adding a woman on
their boards in the coming year
- We voted against directors of 26 companies for having zero women on their boards. We will continue to engage companies on diversity levels in Australia and monitor improvements.
After several years of improvement in remuneration practices and disclosure, Australian companies are still lagging their US and UK peers. Countering this trend is an overall improvement in the diversity of remuneration metrics being used as companies shift from relying on Total Shareholder Return (TSR) exclusively. Below, we have discussed our observations in greater detail.