ARTICLES & NEWSLETTERS
Informed Commentary
Governance & Leadership Challenges
Periodically Geoff Nunn & Associates prepares commentary on the issues confronting boards, directors and CEOs. See our latest offerings here:
Measuring Corporate Performance in Utilities and Renewable Companies
As part of our annual benchmarking we look at those KPIs which utility and renewable companies include in their annual reports. Some drive STI and LTI plans. Others provide an update on how companies are tracking against strategy and operational priorities .
Boards and board committees are very focused on corporate performance reporting. Priorities vary depending on factors such as Ownership Structure, Regulatory Environment, Customer Base, Geography and Stakeholder Views.
From an executive remuneration perspective boards need to ensure that they are paying appropriately to attract and retain capable leaders. The remuneration mix needs to reflect the company’s stage of development. Effective systems for measuring corporate and individual performance are essential. See our newsletters here:
CEO and Executive Remuneration Shows Strong Growth
The market for executive remuneration strengthened in 2023. Demand for capable executives rose significantly in energy-based utilities as a range of projects progressed. The renewable sector is expanding rapidly and many have been in recruitment mode. Some are paying a premium to attract the right people.
Energy-based utilities are in a state of transition. All are up-grading existing infrastructure. Most have multiple renewable projects underway. Some have diversified into solar installation, smart hubs and other technologies.
In our latest newsletter we discuss the state of the utilities market and some of the key issues confronting Remuneration Committees in planning for the 2024 review of FAR. You can view a copy here:
Remuneration Strategy Design and Corporate Conduct
The recent Qantas AGM (3.11.2023) has again raised the question of executive remuneration design as a potential contributing factor to corporate misconduct. Qantas battled for survival when the pandemic broke in 2020. More recently it has been plagued with issues relating to the sacking of workers, selling flights that had already been cancelled, delaying refunds to customers and discontent with executive remuneration levels. In this newsletter we explore the possible linkage between executive remuneration strategy design and alleged misconduct. The nature of which harks back to the Banking Royal Commission of 2018-2019. You can view our newsletter here:
Remuneration Strategy Design and the Qantas Experience - November 2023
BOARD & EXECUTIVE REVIEWS 2023
2023 started out under something of a cloud. Conflicts across the globe with accompanying economic challenges have pushed inflation to an unsustainable level. Notwithstanding this executive remuneration recovered after almost three years of relative stagnation. In our primary utilities and renewables markets we saw increases in Fixed Annual Remuneration of between 2.5% and 3.5% at the median in 2022. Board fee increases remained flat with a 0.5% movement. The conduct of Fixed Annual Remuneration Reviews for the CEO and executive team raises a number of key issues. We’ve offered some advice and guidance in the newsletter below:
Board and Executive Remuneration Reviews - 2023
See also: Utilities Benchmark 2023 and Renewables Benchmark 2023
Renewables Benchmarking 2023
With all the activity going on in the renewables sector in Australia and New Zealand some companies have been paying a premium to attract the right directors, CEOs and senior executives. Renewable companies face challenges in attracting the right people, particularly when finances are tight and projects not yet generating a sustainable income stream. Our latest Governance Update sets out some remuneration strategy parameters for renewable companies and describes our inaugural benchmark of senior leaders in the Sector. You can view the PDF here:
Renewables Benchmark 2023 Governance Update
Utilities Benchmarking 2023
Our annual Utilities Benchmark for 2023 is now complete and the results are available by contacting Geoff Nunn on gtnunn@gna.net.au. We cover board, CEO and executive remuneration in utility companies across Australia and New Zealand
We’ve included a few of the key findings in our latest newsletter which you can find here:.
Executive Remuneration Structuring - A Critical Governance Imperative
We often get asked the question: “What‘s the best executive remuneration framework for our organisation?” There is no one-size fits all. Each company’s executive remuneration framework needs to be specifically designed for its governance and operating environment. There are a range of factors to take into account:
The company’s ownership and governance structure.
The degree to which the company has a market monopoly.
The applicable regulatory framework.
The company’s operating and risk environment.
The company’s commercial orientation and focus.
The company’s geographic scope of operations.
In this Newsletter we are going to discuss three base executive remuneration frameworks and the environments in which they might be appropriate.
Remuneration Reviews 2022 - The Issues
The 2022 annual remuneration review for the board, CEO and executive team is just around the corner. Many utility organisations placed reviews on hold during 2020 and 2021. We forecast upward reviews in the range of 2.0% to 2.5% this year. See our latest newsletter here:
Remuneration Benchmarking in the Utilities Sector
Each year we undertake a benchmark analysis of board and executive remuneration in the Utilities Sector across Australia and New Zealand. This year we analysed remuneration practice for sixty-one utility companies involved in electricity generation, transmission, distribution and retail, gas production, distribution and retail, water supply, wastewater treatment, recycling and retail. 2021 was a year of consolidation and structural review. Some of the highlights are discussed in our latest newsletter. You can download the PDF here:
January 2022 Governance Update
The Renewable Paradigm Shift
Measuring Corporate Performance in the Utilities Sector
As part of our annual benchmark review of the Utilities Sector we take a close look at how organisations across the electricity, gas and water sectors assess corporate performance. Most private and listed utilities align executive remuneration, as delivered through STI and LTI plans, with corporate KPIs. Government owned utilities have been moving away from variable “at risk” remuneration for the last 10 years. Nevertheless they rigorously measure all aspects of their organisational performance and report, on a periodic basis, to their shareholder(s) and various regulators.
In our latest Governance Update we review changes in the measurement of corporate performance in the Utilities Sector over the last 18 months. In particular the increasing emphasis on carbon transition. You can download the PDF here:
Remuneration Strategy Design Imperatives
CEO and executive remuneration strategy design is all about balance and context. There is no one size fits all. The are, however, some guiding design principles which need to be followed if you are going to attract the best people. Designing an effective executive remuneration strategy is creative process. Not an accounting exercise. The numbers are important but so is the message. If you position high in the market you send a message that it’s really important that you secure the right executives . They will feel valued and appreciated. However if you pitch low in the market you may send the opposite message. See out latest newsletter which focuses on board and executive remuneration in the Utilities Sector. You can download the PDF here:
Board and Executive Remuneration in the Utilities Sector August 2021 see also:
Tailored Remuneration Solutions
Board and Executive Remuneration Reviews 2021
2020 was a year of restraint for board and executive remuneration. Executives and directors in some sectors of the Australian economy took pay cuts or accepted a freeze in 2020. Airlines, universities, tourism, financial services and many others felt the pain. Alan Joyce, Qantas CEO lost his slot as the highest paid executive in Australia and had a lean year in 2020 with both the STI and LTI failing to activate. In this Newsletter we discuss the vexed question of how companies should approach the 2021 annual review of remuneration for CEOs, executives and non-executive directors. We discuss the governance issues and review proposed changes APRA’s Draft regulation CPS 511 for executive remuneration in financial services entities. You can download the PDF here:
2020 in Review: Cautious Optimism For 2021
In this Newsletter we review events of 2020 from a macro governance perspective and get out the crystal ball and have a look at what 2021 might hold. We talk about the wisdom of replacement of organisational leadership when a significant breach of legal or governance requirements takes place. In particular the decision by David Murray to step down as Chair of the AMP (under pressure from institutional investors) in the wake of the Bo Pahari scandal. We canvas the possibility that a deeper review may uncover systemic issues which need to be worked with through engagement and dialogue rather than leadership replacement. You can download the PDF here:
January 2021 Governance Update see also:
Board Dynamics
The Board & Executive Remuneration Review Conundrum
In this Newsletter we talk about the dilemma facing remuneration committees in considering the 2020 annual review of board and executive remuneration. In the current environment boards and remuneration committees face a conundrum. Whether to proceed with the next annual board and executive remuneration review or affect a freeze.
In our last advice we canvassed the possibility cuts and freezes might lead to a correction in the executive remuneration market. This now seems a reality. If a sufficient number of companies report a zero increase or a reduction in same incumbent remuneration then the market will flatten or go backward. Just the same as the housing market when the median house price falls. It could be quite significant when you take into account that many STI and LTI plans will either be set to zero by board decision or fail to activate because KPIs are not met. If we can help give Geoff a call on 0418 595 107 or email gtnunn@gna.net.au.
The Shifting Governance & Leadership Landscape: Covid-19
In our second April, 2020 Newsletter we talk about the latest McKinsey Briefing, Global Health and Crisis Response 13 April 2020. It contains insights and for directors and executives. The first part of the report looks at how countries have responded to the virus and the effectiveness of actions taken. The second part looks at the economic impact and the fallout for companies and government entities large and small. In particular the changes in consumer behaviour and consequences for different industry segments. What will the depth of the disruption be? How long will it last and what will the shape of any recovery look like? We continue our review of the global pandemic’s impact on board and executive remuneration. If we can help give Geoff a call on 0418 595 107 or email gtnunn@gna.net.au. You can download the PDF here:
Board & Executive Remuneration: Covid-19
We’ve seen a number of companies move to freeze or reduce board fees and executive remuneration in response to deteriorating business conditions. More will follow suit over the next few weeks. The aim is to make a material difference to financial viability by freezing or reducing board fees and executive remuneration packages. For those with a large workforce covered by enterprise agreements the impact is likely to be minimal. For others with a substantial professional base, where reductions across the board are being called for, the impact will be significant. We are currently working with a number of companies confronting this decision. If we can help give Geoff a call on 0418 595 107 or email gtnunn@gna.net.au. We’ve provided guidance on some of the issues to be considered in our latest Governance Update. You can download the PDF here:
April 2020 (1) Governance Update see also:
2019 A Watershed Year in Corporate Governance
By any measure, 2019 has been a tumultuous year in corporate governance in Australia. We moved from the stark revelations of the Hayne Royal Commission Final Report in February to the eventful Westpac AGM on 12 December. The Westpac Board survived a second “No” vote on its Remuneration Report which could have resulted in a spill. An embattled Lindsay Maxted endeavoured to navigate his way through overwhelming shareholder discontent. 2020 is going to be an interesting year for boards and other governance bodies. Climate change and cyber security will remain high on the agenda. Boards will grapple with increased compliance requirements as regulators sharpen their focus on non-financial risks. The pressure to balance the interests of different stakeholder groups will remain high and regulators will increasingly hold boards to account. Our final Governance Update for 2019 is here:
APRA Draft
Standard CPS 511
On 23 July, 2019 APRA released a discussion draft: “Strengthening Prudential Requirements for Remuneration” in regulated Financial Services entities. The proposed new Standard (CPS 511) is a direct result of recommendations from the Hayne Royal Commission. Specifically the Final Report highlighted that the structure of executive remuneration, and the KPIs driving STIs and LTIs, was implicated in the misconduct that the Royal Commission uncovered. The Draft Standard has a number of issues and we have offered commentary in our latest Governance Update and lodged a submission with APRA on how the Standard might be enhanced:
September 2019 Governance Update see also: Our APRA Submission Here
World Economic Forum Global Risk Report 2019
The latest World Economic Forum 2019 Global Risk Report indicates an increasingly complex and uncertain risk environment in which corporations and government owned entities are required to operate. Interestingly five of the top ten risks are associated with climate change and two related to the cyber environment. Existing business models are increasingly challenged by disruptive technologies and new entrants to the market. This year’s Edelman Trust Barometer show Australia’s position has improved. However, we still lag other developed economies when it comes to trust in our organisations. A significant challenge for boards of all types. You can download the PDF here:
Shareholder Primacy and the Hayne Royal Commission
Repercussions from Royal Commissioner Hayne’s Final Report continue to reverberate across Australia. In this edition of Governance Update we take another look at the question of shareholder primacy. There have again been calls to change the Corporations Act along UK lines thus legally requiring directors to take a broad based stakeholder perspective. You can download the PDF here:
Bank Boards Capacity to Set Executive Remuneration Curtailed
On Wednesday 27 March, 2019 APRA Chair, Wayne Bryes, shocked the business community by announcing, at a banking summit in Sydney, that bank boards may lose the power to set executive remuneration: “I think it’s fair to say that attempts to move away from the conventional model of executive remuneration have not been wholly welcomed.” This would be a major blow to bank board credibility at a time they are working hard to re-build trust with their stakeholder base. In the this Governance Update we explore some of the issues with the current structure of executive remuneration in the banks, and other corporates which follow a similar model. You can download the PDF here:
Previous Updates and Briefings (Prior to April 2019)
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March 2019, Governance, Culture and Executive Remuneration:
Commissioner Hayne identified three key challenges for Boards and CEOs. Executive remuneration presents it’s own unique problems. The message that continues to emerge is that the current FAR/STI/LTI configuration will be largely retained albeit with a re-focusing of KPIs. In this Executive Remuneration Update we challenge the assumptions underpinning the current model and invite Boards and CEOs to consider other options. You can download the PDF here:
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February 2019, The Call for Enlightened Governance:
On 1 February, 2019 Royal Commissioner Kenneth Hayne delivered his Final Report into Misconduct in the Banking, Superannuation and Financial Services Sector to the Governor General. As well recommending structural changes to the Financial Services Sector and referral to the regulator for some, he focuses a spotlight on boards and executive teams and invites them to consider a more enlightened approach to corporate conduct and governance. By any measure the Royal Commissioner and his team have done an extraordinary job over the past 12 months. Events have moved a long way from the Inquiry that we didn’t need to have to one of stark revelations of corporate misconduct. We discuss the implications for boards and directors in our February, 2019 Edition of Governance update which can be downloaded here:
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January 2019, 2018 A Dramatic Year In Corporate Governance:
2018 was a watershed year for corporate governance in Australia. The impact of various inquiries and reports including the Banking Royal Commission, the APRA Report into the Commonwealth Bank, release of the draft 4th Edition of the ASX Governance Principals, the 2018 Edelman Barometer and the ACCC Report into Retail Electricity Prices cannot be underestimated. The list goes on and debate continues between those who favour a significant re-think of our corporate governance model, possibly along UK lines, and those who support minimal change. Please see our January, 2019 Governance Update:
January 2019 Edition of Governance Update See also: Board Hot Spots 2018-2019
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December 2018, Remuneration Reports Show Little Change in 2018:
Hearings of the Banking Industry Royal Commission concluded on Friday 30 November, 2018. As expected the media had a field day with the comments of some Chairs and CEOs. We’ve done our own analysis with a view to looking a little deeper into the issues confronting the Sector and business in Australia more generally. Boards have their work cut out for them to re-build confidence and credibility. We’ve also had a look at the 2018 Remuneration Reports of the Big 4 plus the Bendigo & Adelaide Bank to see if much has changed. It hasn’t. See our commentary here:
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October 2018, Board Hot Spots 2018:
In this edition we discuss Board Hot Spots and ongoing issues and concerns for Boards of Directors. The challenges confronting boards in 2018/2019 are unprecedented. See our commentary here:
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August 2018, Corporate Credibility in Question:
By any measure the credibility of our corporations in Australia is not looking good at the moment. The Banking Industry Royal Commission has uncovered a litany of transgressions that have shocked the community. This edition of Governance Update explores some underlying causes and the challenges boards of all descriptions face in rebuilding trust. Follow our commentary here:
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July, 2018, Executive Remuneration & Negative Corporate Behaviour:
This edition summarises concerns about the structure of executive remuneration in our larger listed and private companies and how it might be implicated in the negative corporate behaviour that has received so much coverage lately. View our challenges to the executive remuneration orthodoxy here:
Articles: Exploring Emerging Challenges
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In this article Geoff puts on his old hat as a Corporate Remuneration Advisor and questions the assumptions that underlie executive remuneration in most of Australia’s major corporations.
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In this article Board Advisor & Corporate Governance Specialist, Geoff Nunn, considers the current crisis of confidence in our corporations and government institutions. He explores the history and offers guidance to directors on a way forward.