Areas for improvement on ASX boards
Women on boards and executive remuneration are two areas in the sights of Federated Hermes as it outlines how it intends to apply corporate governance.
In a report on its corporate governance principles, the US asset manager, which was a member of the 30% Club, said it recommended voting against the re-election of a nominations committee chair in any ASX 300 company which fell below 30% female representation.
“Boards should give careful consideration to how they can find members from outside of their typical networks and the breadth of attributes or perspectives that may be valuable to their decision-making. Where boards have made insufficient progress on critical dimensions of diversity, including racial and ethnic or gender representation at either board and senior management level, we will recommend opposing the reappointment of relevant responsible directors.”
It would also consider recommending a vote against the re-election of a board chair if the company had an all-male executive team.
“This policy seeks to address clear laggards; and we expect most companies to be significantly further along the journey to gender parity in leadership.”
Moving on, it said pay practices and reporting in Australia was “too unspecific” and that it would like to see more specific definitions.
More than four times base salary in variable pay was “concerning”, it said, and more than six times was “unlikely to gain our support without a compelling justification”.
Management should be long-term stakeholders in the companies with minimum shareholding requirements equivalent to 300% of salary for ASX 100 companies, 200% of salary for ASX 200 companies and 100% for all other companies, which should remain in place for at least two years after the departure from the company.
“In Australia, despite some progress, pay practice and reporting often remains too unspecific for shareholders to sufficiently judge the appropriateness of awards and the link to a company’s performance. We expect retrospective disclosure of bonus targets, and a more specific definition of qualitative performance criteria and their link to the company’s strategy.
“For long-term incentives, we expect the disclosure of targets when the awards are granted and details on the performance achieved against such targets once the awards vest. In the case that a company deems it not appropriate for reasons of commercial confidentiality, we expect a full explanation in respect of each metric for which this is not the case.”
AUTHOR
Laura Dew
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