More power to the shareholder on executive salaries
The Age
Thursday October 1, 2009
Productivity Commission's report leaves room for further improvement.THE Productivity Commission has some extra work to do between now and December 19 when it hands down its final report on executive pay. It's missed some obvious changes.The draft report found that the Australian system is not broken, and correctly resisted the temptation to impose rigid caps on executive pay or grant shareholders a binding vote on remuneration: Australian companies would struggle to recruit if pay contracts could be overturned.It came up with some useful proposals that should be confirmed in the final report in December, and adopted by the Government. Institutions should reveal how they vote on pay, as the commission recommends, and company directors will work harder to get remuneration right if they know they will face a shareholder vote if their companies cop two consecutive 25 per cent-plus negative non-binding votes on pay.The scrapping of the "no vacancies" defence is also useful. At present boards can deflect shareholder pressure for new faces by declaring that board numbers are limited, and that no vacancies exist. Under the new rules, shareholders would decide how many directors were needed.The idea for plain English versions of remuneration reports is worthy, but the devil will be in the detail, or perhaps, in the lack of it. Remuneration reports have become enormously complex because pay deals themselves are complex, and it remains to be seen whether an epitome that is not misleading can be constructed.Shareholders should be given more power in the final report, however.When the commission sought ideas, the Australian Securities Exchange suggested that its role as a remuneration regulator for listed companies be ended, with listing rules such as those that require shareholder approval for the issue of new shares to directors and fee increases for directors swept up into the Corporations Act, and monitored by ASIC.It's a logical move, the ASX itself is suggesting it €” and the commission has ignored it. It should fix that, and in the process fix a weak spot in the existing ASX regime that allows companies to avoid getting shareholder approval for the issue of shares to directors by buying their own shares on-market. Around 40 per cent of listed company pay is in the form of shares, and a similar percentage of companies are disenfranchising shareholders by using on-market share purchases to facilitate them.Overall, it's an unusually prescriptive effort for the laissez-faire commission. But given the concern over pay and the excesses of the boom it should be even more so in its final form.MYER will pay its advisers and brokers $83 million if its float gets away at $4.40 a share, the mid-point of the $3.90 to $4.90-a-share range for the institutional book-build, but it won't be the best payday the brokers have seen.Myer will pay $21 million for services including accounting (PricewaterhouseCoopers banks most of it) legal work (Freehills is the big winner there), tax advice, listing fees, advertising and sundries, including the cost of printing its glossy prospectus.The balance of $62 million in a float at $4.40 a share would go to Myer's brokers, two-thirds of it from a base fee of 2 per cent on float value, with the remainder coming as a 1 per cent bonus that is payable at Myer's discretion, but in the mail if the float succeeds.The broking fee is a "for service" payment: the float is not underwritten, so there is no risk that brokers will be required to take up unsold shares.But Myer is lucky it is floating here. Floats in the US routinely attract fees that are twice as large, and the going rate for shepherding a company through a float in Asia is about 4 per cent.And as with all exercises of this kind, the broker fees trickle down. At $4.40 a share, Myer will pay $62 million to the three joint lead managers of the float: Credit Suisse, Goldman Sachs JBWere and Macquarie Capital Advisers.They will in turn pass on about a third of the money, or about $20 million, with about a third of the $20 million going to the six co-lead managers of the float (Citigroup, CommSec, Deutsche, JP Morgan, Merrill Lynch and RBS), and the rest going to a gaggle of retail brokers who will collate client demand into "broker firm"orders (the retail arms of the joint lead managers and co-lead managers are of course in this group). Leading retail broking players are E.L.&C. Baillieu, Macquarie Private, Ord Minnett, Morgan Stanley Smith Barney, RBS Morgans and Wilson HTM.It's a lot of money however you slice it, but in the world of investment banking there are higher-yielding jobs.The lead managers have been working towards the float for months, and will have large teams working full-time on the float for another month, and while floats offer league table prestige, other jobs including share selldowns, placements and rights issues are more lucrative: Macquarie, for example, will probably bank less for its work on the Myer float than it earned in 48 hours last week, when it spread cash-strapped Canwest's 50.1 per cent stake in the Ten Network to institutions in a lightning $680 million deal.A BRIEF reminder of how far fear has receded in the markets. A year ago last Tuesday Wall Streets's Dow Jones Industrial Average fell by 778 points when the US Congress rejected the Bush administration's first attempt at a bank bailout.It fell another 678 points on October 9, and lost a staggering 2,692 points or 24 per cent of its value in the two weeks to October 10.This market is now aggressively pricing in the economic recovery, and due for a breather. But it's not going to revisit the panic that unfolded a year ago.
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