Bespoke Analysis

It’s important to be “in the market” in terms of how much you pay your board, CEO and executive team. They know their worth. And so do your competitors. This does not necessarily mean pitching at Percentile 75. If everyone did this it would drive up the market beyond affordability.

But it does mean you need to consider your total value proposition and make informed decisions based on actionable intelligence.

Those that get it right are much better placed to attract and retain the best leadership talent.

The approach that your company takes to structuring CEO and executive remuneration is a critical success factor. If the “at risk” components are unrealistic and the weighting does not reflect the risk environment, this will be a detractor to informed executives. Getting the balance right is important for attraction and retention.

Market competitive Fixed Annual Remuneration is baseline for an attractive package. The STI and LTI components need to be positioned appropriately in your market segment and KPI targets set at realistic levels.

The market is polarised in terms of variable remuneration. Many government owned utilities have abandoned STI plans and most never had an LTI. The exception is Snowy Hydro which has both.

Private and listed utilities openly embrace both STI and LTI plans. Shareholders expect alignment between reward for executives and TSR.

Whatever model is appropriate for your organisation balance is the key, together with KPIs which support a multi-stakeholder perspective.

We track board, CEO and executive market movements across time. Some advisors measure movement by fluctuations in gross income as reported in the annual remuneration report. This can be a bit misleading as variations in STI and LTI awards can be quite pronounced.

We track same incumbent FAR movements. This is an important measure. Changes in incumbent can result in significant upward or downward movement which does not give a true reflection of how companies are increasing or decreasing board and executive reward.

We spend a lot of time analysing how utility companies track corporate performance. What KPIs are reported in annual reports and what KPIs factor into STI and LTI Plans. See our webpage: Informed KPI Analysis.

We can support your organization in its decision making around those critical KPIs which underpin results, however these are assessed.

Different stakeholders have different expectations in terms of corporate reporting. Balancing these expectations with those factors which really make a difference needs to be based on actionable intelligence.

We’ve chosen to focus on operating revenue and return on equity as these two measure provide a snapshot of the financial health of an organisation. We could well have chosen others and have the base information to extend our analysis.

Our real interest is the correlation between board and executive remuneration and company size as measured by revenue. Others use market capitalization (in the case of listed companies) or total equity. Both are valid measures.

In the current economic environment endeavouring to chart the future can be a bit fraught. Our most learned economists cannot agree on CPI forecasts and uncertainty in the global geopolitical landscape makes the task doubly difficult.

Nevertheless we take into account a range of factors in making our predictions. Companies budget for specific increase and this adds some level of certainty. Somtimes budgets get blown for reasons outside of the company’s control. Boards and Remuneration Committees like a degree of certainty when determining outcomes.