MinterEllison's Remuneration Governance team were approached by CSL to advise them on improving executive pay design and governance, gaining better alignment between shareholders and executives, and enhancing investor support – all to be achieved prior to the October 2017 AGM.
To deliver to this deadline, MinterEllison as Board Remuneration Adviser, worked alongside the CSL Remuneration Committee, Board members, the CSL Human Resources team, and US based Adviser AON.
The only companies listed on the ASX with market capitalisation greater than CSL are BHP and the Big 4 banks. At the October 2016 AGM, more than 25% of shareholders voted on the resolution to adopt the Remuneration Report were against. CSL had just received its first ever strike and did not want a second, that would require putting a board spill motion to shareholders.
Australia's 'two strikes' rule, is of interest because although 'say on pay' legislation has been introduced in several countries, Australia's version is unique as it gives shareholders the right to spill the board while not requiring a binding vote on pay.
The first task was to complete a diagnostic of CSL's executive pay system in the context of the strike and then build a plan for change.
An early intervention in the change plan involved organising, and guiding meetings between board members, major investors from around the world, and proxy advisers who had opposed the Remuneration Report. This was a new initiative for CSL, and was effective in building understanding for all stakeholders of the concerns related to the Report.
This process built insights about opportunities for pay design, with the CSL Board agreeing to the development of a new, globally-competitive pay design for its senior executives.
Over the following months, the MinterEllison team worked closely with CSL to develop and pass significant changes to pay design; including developing a new equity performance condition, and adoption of a face value equity allocation methodology.
CSL's annual incentive was also redesigned – with the number of key performance areas significantly reduced to Net Profit after Tax (NPAT), Cash Flow from Operations (CFO) plus up to three other business or individual objectives.
A Board level 'Leading and Managing Modifier' to assist in ensuring that CSL senior executives deliver sustainable financial, operational and people outcomes was introduced. A 'take-home-pay' table was introduced to CSL's Remuneration Report (in-line with Australian Shareholder Association guidelines) to help investors differentiate actual remuneration received from the statutory disclosures.
MinterEllison also assisted in development of an annual analysis of pay levels across five different comparator groups for reference purposes to help CSL better understand the pay levels of senior talent around the world.
The significant commitment to getting pay design and disclosure right, together with Board member engagement with major institutional investors who had voted against the remuneration report in 2016, resulted in a very successful turnaround at the 2017 AGM. All three proxy advisers - CGI Glass Lewis, Ownership Matters and ISS recommended “For” votes at the October 2017 AGM, and CSL achieved a creditable 88% support for the resolution.
Assisted by our Remuneration Governance team's work, CSL are continuing to expand their global footprint with an executive pay design that is simpler and more transparent, rewards real achievement, and aligns shareholders and senior executives.