With AGM season upon us, remuneration committees should be wary of risky decisions.
Directors on executive remuneration committees (RemCos) have had much to consider ahead of the 2025 AGM season and in the face of rising shareholder activism.
Korn Ferry senior client partner Emma Grogan says the number of strikes against ASX-listed companies hit highs of 41 in 2023 and 40 in 2024, compared to 22 in 2022. “Several companies have received a second strike and we’ve seen examples of a fourth and even a seventh consecutive strike in a row.”
Grogan says there have also been significant “no” votes over the past two years. The themes leading to these include perceptions that remuneration structures were inappropriate or flawed, or that executives were being treated more favourably relative to the performance of their company or shareholders’ experience.
While there were fewer remuneration strikes at Australian AGMs in the first half of 2025 compared to the same period in 2024, proxy adviser Glass Lewis says shareholder scrutiny and the willingness to vote against companies remains high.
Of the five remuneration strikes recorded during the period, three were at companies where a founder still sets the tone. According to Glass Lewis, this may reflect growing scrutiny of founder-led boards following recent controversies at Mineral Resources and WiseTech Global. Also possible is that founder-led boards tend to be more resistant to shareholder pressure and are typically slower to make big changes in response to feedback.
Grogan suspects companies are likely to be more conservative this AGM season, given the number of strikes experienced previously. “It would probably take a fair bit of courage by board members to make some risky or bold decisions.”
But she adds there’s a chance some directors may believe it’s worthwhile taking risks if they believe the outcome will help retain or attract the right executives because, in the end, that’s also the right outcome for shareholders.
ESG is big down under
Grogan says heightened agitation from stakeholders in recent years has led to more integration of environmental, social and governance (ESG) weightings into remuneration considerations.
“The vast majority of ASX 50 companies have incorporated ESG metrics into their frameworks, more commonly within short-term incentives (STIs),” she says.
“There are some differences across industries. You are more likely to see an environmental measure — for example, a carbon emissions or water energy efficiency target — in the mining or energy industry. And you’re much more likely to see a governance measures in the financial services industry. Social measures are the most common type of measure because we’ve had them for the longest — for example, safety measures or customer advocacy.”
Grogan says the scrutiny of ESG measures is focused on whether or not they are strategically aligned and whether they should be incentivised over and above fixed pay. Stakeholders are also looking at the rigour behind integrating them.
However, she says high-profile organisations in the UK, such as HSBC and BP, are reducing their ESG weightings. And, in the US, she says there’s been an unsurprising move away from diversity metrics.
Pinpointing the trends
Grogan is witnessing more scrutiny of boards because of perceived insufficient consequences or downwards adjustments. She says some of the larger entities are also awarding long term incentives (LTIs) in performance rights that have a vesting performance period of up to four years, rather than the usual of about three years. Plus, there’s been a slight move away from a higher weighting on non-financial metrics on the ASX 300.
“Over the past couple of years, we’ve commonly seen a 50/50 weighting, or in some cases, a higher weighting on non-financial metrics,” says Grogan. “We're starting to see several entities move back to that 60/40 or 70/30 mix.”
In terms of disclosures, she’s picked up heightened stakeholder expectations around the transparency of the performance targets that determine executive bonuses and LTIs. There’s also more questioning of non-financial measures when they appear opaque or are not directly tied to strategic objectives.
“For example, several financial services entities have introduced a reputation track measure and we’ve seen these challenged if they aren't necessarily experiencing a major reputational problem.”
In terms of the financial measures of LTI, Grogan says the most common used is a relative total shareholder return (TSR). “It’s strongly favoured by proxy advisers and investors, typically because it is a relative measure and very aligned to shareholder experience.”
Grogan adds there’s been an increasing use of minimum shareholding guidelines to align executive and shareholder interests. The median shareholding requirement for ASX 50 CEOs is two times fixed pay with a period of about four to five years to accumulate that shareholding.
Elsewhere, Grogan says the Australian Prudential Regulation Authority’s (APRA) CPS 511 has become “a gold standard not just for companies in financial services, but also across the ASX 100”.
“Under this standard, it’s clear the board is responsible for not just the remuneration framework in place, but also its application. It may have been applied in the past, but it wasn’t commonly referenced in board and RemCo charters.”
International comparisons
RemCos trying to attract global talent face added challenges.
According to Research by Guerdon Associates’ GECN Group, the US sets the benchmark for CEO pay quantum. While adjusting for purchasing power parity shrinks the gap to other markets, Guerdon says US CEOs still come out best. Indeed, the premium for US CEOs is about $10m over Australian CEOs.
Guerdon says the target pay mix for Australian CEOs is similar to European CEOs, with approximately equal weighting to fixed pay, STI and LTI. This contrasts with CEOs in the US where LTIs and equity often make up 75 per cent or more of the total package.
The unlisted world
Al Jurangpathy, a principal at Korn Ferry, notes that NFP and private companies enjoy greater flexibility in designing remuneration frameworks aligned to their organisations.
Duncan West GAICD — chair of Challenger and a non-executive director of Suncorp and Avant Mutual — agrees, describing this as a potential competitive advantage. “If you're in that environment, I’d encourage you to really think about using remuneration to drive the right outcomes for your entity,” he says.
Jurangpathy adds that some Australian private companies are increasingly in favour of using LTIs to reward and retain executives. “Some of the moves they are considering include deferring a portion of the STI and introducing a new LTI component.”
LTIs are much less common in the unlisted or private space because they are not easily tradable. “If LTIs do exist, they’re typically in a more complicated design or have a cash-based aspect,” notes Grogan.
Given the trends, it’s no surprise RemCos appear to be the busiest amongst their fellow directors.
West, RemCo chair at Avant Mutual, says they spend way more time on remuneration issues than before. “You could almost argue that the RemCo, certainly in financial services, is the hardest-working committee. Not only does it work on remuneration, it also spends much time getting stakeholder input.”
RemCos are also seen to examine much more detail than boards do on almost any other topic. “And that's just when things are going well,” says West. “If there’s an issue, then the amount of time spent becomes exponential.” says West.
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