The global asset manager has singled out the poor pay plans of Australian companies that focus on short-term priorities and a “ratcheting up of pay to senior executives”.
In its latest Stewardship Report for 2018-19, State Street Global Advisers (SSGA) noted that it voted against companies that had poor remuneration structures, inadequate disclosure or a misalignment between pay and performance.
“We find that Australian remuneration plans are shifting toward short-term priorities and away from long-term targets,” the report said.
“Concerning practices encouraging short-term priorities include the continued use of retesting features, as well as the combining of short-term incentive and long-term incentive plans into a single pay plan.”
The asset manager, which has $4.1 trillion (US$2.8 trillion) in assets under management (AUM), is known for its asset stewardship through proxy voting, client disclosure and engaging directly with companies.
The group’s Annual Stewardship Report, released on 5 September, noted that while Australian companies have improved disclosure on the metrics used within their short-term incentive plans, SSGA expects companies to also disclose their performance against such targets when making remuneration decisions.
“Further, the benchmarking of total remuneration against much larger US companies without sufficient justification resulted in a ratcheting up of pay to senior executives in some companies,” the report said.
“We have increased our engagement with Australian companies with a focus on ensuring compensation plans are linked to long-term performance and do not include aspirational peers.”
In 2018 the asset manager discussed pay-related issues with 322 companies. Of these engagements, SSGA discussed overall compensation programs with 51 per cent of the companies, concerns about poor executive compensation structures at 20 per cent and concerns with the quantum of pay at 18 per cent of companies.
The report noted a high level of shareholder dissent in Australia. During 2018, the average support levels on remuneration reports dropped to 89 per cent in 2018 from 92 per cent in 2017, and 26 companies in the S&P/ASX 300 received a “strike” in 2018, up from 11 companies in 2017.
“By engaging with boards and management teams about issues that are vital to companies’ long-term profitability and using our voting power to effect change, we rigorously advocate for our clients’ interests,” SSGA global chief investment officer Rick Lacaille said.