Dramatic spike in votes against ASX remuneration: Georgeson

ASX300 companies saw almost double the number of shareholder votes against executive remuneration reports in 2023 compared to 2022, according to shareholder engagement and governance consulting firm Georgeson.

There were 40 strikes against executive remuneration reports in the ASX300 during the 2023 AGM season compared to 21 in 2022. A strike happens when 25% or more shareholder votes are cast against the adoption of the board's remuneration report. Under legislation, if a listed company gets two strike votes in consecutive years at AGM, shareholders can then vote to spill the board, requiring directors to present themselves for re-election. That has not yet happened in Australia.

There is a big uplift in the number of strikes," said Paul Murphy, Georgeson's head of ESG for Asia Pacific. "There's an element of cumulative effect - there are a lot of investors that operate on based on guidelines on remuneration structure such as the way that companies pay their executives, whether the metrics or targets are disclosed, etc., and in any given year there might be a lot of investors that support remuneration reports, but with reservations or qualifications.

"All it then takes are changes such as the recent cost of living crisis and inflation to tip a lot of those marginal support votes into marginal against votes."

Georgeson noted that the number of ASX300 companies that narrowly avoided a strike against their remuneration reports grew by 36%, from 11 companies in 2022 to 15 in 2023. Further, the majority/severity of the strikes have increased, the highest against vote at 83.1% and all top five against votes being over 60% in 2023. By contrast, the largest strike in 2022 was 55.8%. In 2022, only one issuer received over 50% of votes against compared to 13 issuers in 2023.

The two-strikes rule came into effect in 2011 and in the 13 years since, it has achieved one of its "core policy goals," Murphy noted.

"One thing I would say is that it has achieved one of its core policy goals - bring companies to the table and talk with its stakeholders about remuneration," he said. "... it's about reputation and visibility for companies - companies would be anxious to avoid getting a strike and to avoid getting a vote against them."

Georgeson provides strategic shareholder services to corporations and shareholder groups working to influence corporate strategy.

"If companies have a strike in the prior year, they're more engaged and more likely to be proactive in engagement with shareholders and proxy advisers," Murphy said. "Part of Georgeson's business is to foreshadow to companies how big investors and proxy advisers are likely to react. If they have said we don't believe the company disclosed the reasons why they exercised discretion in paying the CEO a big bonus, the company is going to have to make it more tangible and talk about what it means. ... A lot of that comes down to the clarity of disclosure and how much worthwhile information shareholders have to make a call on director's decision.

"There are plenty of times where you're legal compliant, but you still might be missing the optics from an investor point of view."

Looking forward, Georgeson foresees mandatory climate disclosure as a key issue in 2024, particularly with climate-related financial disclosure legislation mooted that would bring in the Australian version of the International Sustainability Standards Board (ISSB) framework.

Georgeson advises companies to familiarise themselves with the new standards even if they are not directly affected in the immediate term, performing gap and peer analysis against the standards, prepare for robust data collection, due diligence and reporting processes and ensuring that boards are well informed about legislative changes, investors' expectations, and how climate change strategy is embedded in the business strategy.

"Mandatory climate disclosure is clearly a big ticket item, and the link between that and AGM voting partly explains a downturn in shareholder proposals and Say on Climate proposals," Murphy said. "It's not that a say on climate is less important, it just means that it's migrating more to the regulatory sphere and particularly say on climate, all the companies that have done it have done it once and they're on a three-yearly cycle not a yearly cycle."

The number of Say on Climate proposals fell from 8 in 2022 to just three in 2023, Georgeson said.

"With mandatory disclosures, the big asks in shareholder proposals - interim targets, alignment with Paris, all of that will be required anyway," Murphy noted. "The need to have a company specific proposal is less than it used to be."

Read more: GeorgesonAGMPaul Murphyproxy votingtwo-strikes