Here’s how to get a remuneration strike at an AGM

Nick Sundich Nick Sundich, October 23, 2023

This AGM season, like any other, a remuneration strike is one of few notable things that may happen at a company’s AGM. We thought we’d write about what it is, what they mean and even forecast companies where we might see it.

 

What is a remuneration strike and how it works

Generally a remuneration strike, more commonly just called a ‘strike’,” refers to a mechanism where shareholders of a publicly listed company express their disapproval of the company’s executive remuneration policies. At each AGM, investors vote on a company’s remuneration report outlining compensation for key management personnel – cash salaries, bonuses as well as share and option payments too.

If there is a no vote of over 25%, the company receives a ‘first strike’. If the same thing happens a year later, there must then be a vote to decide whether or not company directors must stand for re-election. And if this ‘spill vote’ passes (over 50% of eligible votes), a meeting must be held within 90 days with the directors standing for re-election.

If you want to get rid of board directors faster, there are mechanisms available such as the s.249D notice. The main purpose of a remuneration strike is to give shareholders a voice when it comes to executive remuneration. Shareholders are the owners of the company and have a vested interest in ensuring that executive pay aligns with the company’s performance and shareholder returns.

Remuneration strikes also serve as a way to address any potential issues of excessive or unjustifiable executive pay, which can lead to negative effects on the company’s overall performance and reputation.

 

What is the impact

A remuneration strike can have significant consequences for the company and its executives. A strike can lead to public scrutiny and damage the company’s reputation. Inevitably, it will result in changes to executive pay packages or even the removal of certain executives. And it may cause an impact on the share price – something proven by academic research.

In addition, a remuneration strike can also highlight the need for better communication and engagement between the company’s executives and its shareholders. It serves as a reminder that executive pay should be aligned with shareholder interests and overall company performance.

 

Famous case studies of strikes (and some that might be)

In the last 12 months, the most infamous company for this to happen to was AMP (ASX:AMP). At its AGM in March, almost half of its supporters voted down the remuneration report – well above the 25% threshold. Next years’ AGM will be interesting to watch to see if it reaches the two-strikes rule. AMP’s strike didn’t occur during the conventional AGM season because it uses the calendar year.

Companies with a first strike last season included Downer (ASX:DOW) and Newcrest Mining (ASX:NCM). We don’t think we’ll see a second strike with Newcrest given it will be takeover. Downer is a realistic chance for a second strike given its share price has continued to languish in the last year.

This season, the most notable included Treasury Wine Estates (ASX:TWE) which recorded a 46% protest vote – the first time it happened in its 12-year history as a standalone ASX company. If there’s companies that may record a first-strike, it is most likely Qantas (ASX:QAN) given the vote will include pay given to former CEO Alan Joyce and the current board. We don’t think shareholders will be in unison that they all deserve pay near what they received in the 12 months prior.

We may see a number of other companies get near the ‘first strike’ threshold while just falling short, but still resulting in a message being sent. But in the end, the reason first strikes are a big shock is because they are often unexpected to the board. So just because your company isn’t listed as a candidate here – it doesn’t mean it is

 

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