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ASIC provides guidance on board oversight and discretion in executive variable pay schemes

By Michael Hansel and Christina Hooper / 12 June 2020
2 min.
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Worthwhile read for: Company directors, CEO, Board members

Today, ASIC has released practical guidance to support board oversight and the exercise of discretion surrounding variable pay outcomes of senior executives of large listed companies senior executive.  

The guidance is informed by a review of the remuneration governance practices across 21 ASX listed companies. ASIC has released this guidance to assist other listed entities with their decisions surrounding executive pay in the context of the COVID-19 pandemic. 

ASIC has observed that the boards of listed entities are experiencing difficult decisions on executive variable pay at a time where the impact of COVID-19 extends to their operations, finances and employees. 

Robust remuneration governance is vital to supporting effective and informed board decision making that is appropriate to the current changing circumstances of the entity. For example, decisions that may seem counterintuitive, but are in the entity’s long-term interests.

As the behaviour of board members is often influenced by the variable pay they receive, the decisions surrounding the amount can send strong messages to executives about their conduct and performance that are consistent with the long-term interests of the entity.

ASIC has identified that the effectiveness of board oversight and exercise of discretion would be enhanced by the following factors (specific to the current COVID-19 environment):

  • The board being guided by frameworks and processes that result in the active, timely and consistent exercise of discretion to avoid unintended variable pay outcomes arising as a result of circumstances created by the COVID-19 pandemic and to provide timely signals to executives on their performance and the long-term interests of the entity. 
  • The decisions are:
  1.  made with the benefit of structure and contextual information from unbiased sources; 
  2. made with the benefit of arrangement to manage conflicts of interest – whereby the remuneration committee brings independent judgement to decision making; and
  3. transparently recorded and communicated to signal what is being rewarded and why, and the conduct the board deems unacceptable. 

For further information or discussion, please contact our Corporate Advisory and Governance team.
 

Authors
Michael Hansel
Partner
Michael is a Partner in our Corporate practice with expertise in mergers and acquisitions, capital raisings, due diligence, takeovers, joint ventures, corporate restructuring and private equity transactions. Michael is also the co-lead of our Asia...
Christina Hooper
Associate
Christina is an Associate in our Corporate practice.

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