Make it harder for CEOs to get big salaries, bonuses: super funds

ACSI chief executive Louise Davidson said companies needed a longer-term view of what drove executive pay, especially around bonuses.

“We’re trying to avoid the cases where there’s a focus on short-term profitability and outcomes that are clearly detrimental for the longer term,” she said.

“An example of that is the value destruction you’ve seen take place at Qantas over the past 18 months.”

Under the new ACSI guidelines, incentives should be “set at sufficiently challenging levels to ensure high executive incentive outcomes reflect outperformance rather than business as usual”.

They should also focus on three-year timelines at a minimum to better correlate with shareholder outcomes than annual targets and be delivered through equity rather than cash to ensure executives were sufficiently invested in the business.

ACSI also warned against incentive targets and levels that created “perverse incentives” such as encouraging management to use debt for acquisitions to meet earnings-per-share growth targets.

It also said companies should be wary of management trying to “de-risk themselves” by selling vested equity or receiving large cash awards.

Ms Davidson said ACSI would also put a ruler over fixed pay provisions, with some salaries currently set at levels that were “a little eye watering”.

“There has to be sensible consideration of where fixed remuneration is going to sit, and while we sometimes hear about the global market and the risk of talent going offshore [to justify high pay], we don’t see that being as common as companies may be concerned it is.”

Regardless of what remuneration structure they chose, Ms Davidson said ACSI expected companies to “be able to articulate clearly why it’s fit for purpose”.

Safety, climate under scrutiny

The new ACSI guidelines also toughened up expectations of how companies manage safety risks, increasing demands for disclosure and reinforcing the importance of managing mental health, contractor safety and mental health risks.

Ms Davidson said she hoped the new positive duty on employers to prevent sexual harassment, which can be enforced from Tuesday, would also “create an uptick in focus on this”.

On the climate front, ACSI said it expected companies to disclose their exposure to material circular economy risks and have better developed transition plans and more justification of why they were using offsets – and how they ensured their credibility – instead of cutting emissions.

It also had new nature and biodiversity guidelines requiring that companies identify, mitigate and disclose these risks and align their practices with the Taskforce on Nature-related Financial Disclosures Framework.

ACSI expected boards to have more understanding of their own digital security expertise and, if needed, the external expertise they brought in if they fell short.