Ever since Peter Costello introduced the non-binding vote on remuneration reports 10 years ago, executive pay issues have consistently attracted the biggest protest votes at Australian public company AGMs.

But ever since the Gillard Government legislated the excellent “two strikes” recommendations put up by Allan Fels and the Productivity Commission in 2010, executive pay excesses in Australia have moderated.

So much so that this AGM season could become the first where remuneration protests take a back seat to the emerging trend of large votes against incumbent directors.

It was a close run thing during the 2013 main AGM season where the 5 most noteworthy remuneration report protest votes were:

Karoon Gas: 50%
Cabcharge: 45%
David Jones: 40%
Southern Cross Media: 31%
Aurizon Holdings: 28%

No really big stocks suffered a major pay protest last year. Compare that with these unusually large 2013 protest votes against incumbent directors of ASX200 companies:

Phillip Dubois (Sonic Healthcare): 39%
Richard Lee (Newcrest): 29.5%
David Slack-Smith (Harvey Norman): 27.9%
Donald McMichael (Cabcharge): 26.7%
Chris de Boer (Southern Cross Media): 25%
John Roberts (DUET Group): 24.4%

The trend of director protests is continuing this season.

Only yesterday, Richard Parbery suffered a 22.55% protest vote on the proxies at the Bega Cheese AGM because he is a non-independent supplier director.

Similarly, former BHP Steel CEO Ron McNeilly would have thought he’d done well over the years as chairman of Worley Parsons and now “deputy chairman and lead independent director” under founder John Grill.

Also, institutions yesterday gave him a bloody nose with 14.61% against his re-election in the poll when there was only 1.23% against the remuneration report.

McNeilly, 71, has been a Worley director for 12 years and is no longer regarded as independent.

Even James Packer wasn’t able to prevail upon his institutional shareholders to support a family friend. Back out Packer’s controlling 364 million shares in Crown Resorts and it was only 135 million votes for Rowena Danziger and 81 million against, so 37.5% of the independent votes were opposed to a 76-year-old who had served the Packers as a director since 1997.

Lack of independence isn’t the only issue attracting protest votes. As Steve Letts recently observed on ABC online, “over-boarding” or directors taking on excessive commitments is now starting to attract serious against votes.

Peter Warne is an excellent professional director who has just taken over as chairman of the Macquarie Group remuneration committee. Alas, his re-election to the ASX board was opposed by 20.3% of voted shares last month because he also chairs Australian Leisure and Entertainment and OzForex Group, whilst acting as deputy chairman of Crowe Horwath.

There’s also the question of investors targeting directors who are too old. This issue of male directors staying for longer was recently explored on Crikey and it will be tested when 70-something chairs Roger Corbett (Fairfax), John Prescott (Aurizon) and Graham Kraehe (Bluescope Steel) all seek re-election in the coming weeks.

Even surfers get old. Billabong founder Gordon Merchant, 70, is running the gauntlet of investors when he seeks yet another 3 year term at the Gold Coast AGM on November 21.

Merchant has never been an independent director of Billabong which has been a disaster for investors in recent years. He was opposed by 31% of the voted stock in 2011, but will probably be saved by the US private equity players who now control the company.

If there was any justice for Billabong shareholders, Merchant would be barrelled out of the board given that investors have collectively dropped almost $1 billion in the company.

 

Peter Fray

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