TSR has best alignment with shareholder interests, says AMP Capital
Performance hurdles that include a measure of long-term relative total shareholder return (TSR) are not only aligned with shareholder interests but are also easily defined, measured and communicated, according to AMP Capital Investors.
Its latest Corporate Governance Report noted that determining the degree to which remuneration structures were aligned with shareholder interests continues to be a challenge. However, while the report noted that the global financial crisis highlighted structural problems resulting in various moves to strengthen remuneration practices, companies must carefully assess any unintended consequences of change.
“There are many remuneration methodologies that can be used, and while each approach has its merits, there is no perfect tool that satisfies both shareholders and employees, and no one-size-fits all solution,” said AMP Capital Investors’ director of sustainable funds, Michael Anderson. “It’s this balancing act that regulators and boards must consider, and it’s no easy feat.”
AMP Capital Investors, however, has a preference for performance hurdles that include a measure of long-term relative TSR, which compares the performance of different companies’ stocks and shares over time by combining share price appreciation and dividends paid to show the total return to the shareholder.
“AMP Capital strives to invest in companies that will provide our clients with the best long-term returns, and in our opinion relative TSR typically provides the greatest alignment with that objective,” Anderson said, adding that it is not only aligned with shareholder interests, but is also easily defined, measured and communicated.
“While every approach has its problems, relative TSR is one of the most robust in a wide range of situations,” he said.
The Corporate Governance report also examined gender diversity on the boards of Australian companies, and revealed that discussions around board diversity are now becoming more focused on how to accelerate the progress of women into senior positions.
“Having more women on boards has been linked with better performance and there have been many reasons cited as to why,” Anderson said. “Increasingly, shareholders will consider gender imbalance when engaging with the companies they choose to invest in.”
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