Tempted to simply dust off last year’s Remuneration Report and update it with this year’s figures? After all, it got a ‘yes’ vote last time, so why not?
For one, shareholders and proxy advisor groups are increasingly looking for clear messaging around incentive pay structure and targets and how they link to business strategy. And they’re looking for evidence that pay aligns to performance, particularly for the CEO. And that’s not all.
If you’re looking to ensure your 2016 Remuneration Report stays on track for that all important ‘yes’ vote, here’s a checklist to help guide your efforts.
1. Evidence your remuneration strategy links to business strategy
Show how incentive pay measures and targets link to business strategy. You might, for example, list your strategic drivers and show how they are reflected to STI and LTI performance measures. Bonus points if you can show that incentive performance periods align with your strategy timeline.
2. How Company performance is reflected in reward outcomes
Performance down on last year? Then are remuneration outcomes for your executive team (particularly the CEO) down as well? Performance up? How has that translated into increased reward outcomes – and do the percentages tell a credible story? For example, if NPAT performance was 134% of target and the average STI award was 130%, you’re demonstrating strong alignment. What you’re wanting to show is that actual performance directly drives what executives are paid.
3. Rationale behind your reward structure and framework
Here’s where you might talk about what your marketing positioning is and why, what the mix is between fixed and ‘at risk’ reward, show how your approach encourages executives to build and retain shares (and have skin in the game) and how you have a multi-year focus.
4. Address changes in arrangements, potential hot spots and issues
Made changes – why? What’s the rationale – and how did those changes strengthen performance-reward linkages and/or benefit shareholders? What questions did shareholders or investors ask last year – and have you addressed them in this year’s report? Brainstorm what questions you’re likely to get. This is where you want to get on the front foot and pre-empt.
5. Clear messaging, infographics, tables and other visual aids
Graphics that show Average STI over 5 years mapped against operating earnings. Infographics that spell out the elements of your structure and how the align to key business drivers. Tables setting out your executive team and what they got paid for each reward element and the performance metrics that applied. There are many devices you can use to tell your story in a compelling way – the key is not to get stuck in complex technical language and fail to get a clear, consistent message across.