Focus on executive remuneration
It often appears that the most closely scrutinised section of a listed company’s Annual Report is not the disclosure of the company’s profit or loss, but rather the Remuneration Report, which details the names and compensation of key executives.
With growing attention from shareholders, proxy advisors, institutional investors, the media, and other stakeholders, the importance of Remuneration Reports has never been greater. This is reflected in their increasing length year after year. Given that directors and Key Management Personnel (KMP) are responsible for overseeing the company’s operations and stewardship, stakeholders are keen to understand how these individuals are compensated, how their conduct supports the achievement of the organisation’s strategic objectives (including ESG goals), and whether their interests are aligned with those of shareholders, employees, customers, and broader society.
Executive Summary for Directors
For a high-level overview of the key topics covered in the full publication, an executive summary is available. This summary is particularly useful for Directors or others who need only a general understanding of the Remuneration Report requirements.
Producing effective Remuneration Reports is challenging
A clear and understandable Remuneration Report explains how KMPs are remunerated in the short, medium and long-term and links that remuneration back to the performance of the organisation.
This is challenging as the Remuneration Report is not only about compliance with the relevant legislation, it is also a key communication tool between the organisation and its stakeholders. The Remuneration Report should tell the story of how the remuneration framework is structured, the remuneration outcomes and how that aligns to the creation of long-term sustainable value, for both shareholders and other key stakeholders. It should be forward looking as well as reporting on what has happened in the current year. This all needs to be balanced against the privacy of the individuals captured in the report which is a challenging balancing act.
Due to the many different facets the Remuneration Report aims to cover, it often also involves many different parts of the organisation working together to prepare it. Human Resources and Finance are usually the key parties involved, but often the Company Secretary, General Counsel, Investor Relations and even the Board or Remuneration Committee may have significant input as well. With all these competing viewpoints and priorities, it can be easy to lose focus on what the key statutory requirements are that must be included in the Remuneration Report.
Key Remuneration Reporting areas considered
This Guide (3rd edition) considers some of the main legislative requirements for preparing Remuneration Reports and highlights tips and best practice to help organisations produce clear and meaningful Remuneration Reports. In this updated edition, in addition to adding new guidance, we have enhanced existing guidance and reorganised the content to enhance clarity and improve the flow of information. The revised structure aims to provide a more intuitive and engaging reading experience.
It also addresses common questions we are asked in practice, including:
- Preparation of Remuneration Reports
- Who is included in the Remuneration Report
- General disclosures, including how ESG measures should be disclosed
- Treatment of specific transactions in the statutory remuneration table (e.g. share-based payments, leave entitlement, termination benefits, fringe benefits, etc.)
- Employee share loans
- Modifying share-based payment awards
- Deferred short-term incentive arrangements
- Malus and clawback clauses
- ‘Two-strike� rule.
Detailed discussion on each of these topics can be found in our Guide.
Additional topics covered in this edition:
- Guidance for Registrable Superannuation Entities
- Payments made to KMP companies
- Requirements for stapled companies/trusts
- Expanded guidance on newly listed entities
- Benefits such as travel and accommodation
- Amounts paid to KMPs by other entities
