GovernanceMetrics International
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December 17, 2009
GMI Expands Coverage in Australia and Adds to Metrics on Executive Pay
Dear Colleague,
This is to let you know that GMI has just released new ratings and rating reports for our entire universe of 4,233 companies. With today’s release, GMI coverage now includes 1,891 companies from North America; 1,018 from Industrialized Europe; 769 from the Industrialized Asia-Pacific region; and 555 from Emerging Markets. The number of individual countries covered totals 45.
Australian Coverage Expanded to S&P/ASX 200
This release marks the commencement of enhanced coverage of Australian companies. In response to increased interest in Australian mid-cap companies, GMI now provides rating reports for companies in the S&P/ASX 200, up from our previous coverage of the S&P/ASX 100. The additional companies will automatically be added to login accounts and FTP sites for clients subscribing to our All Asia-Pacific, Industrialized Asia-Pacific or Global service.
Please contact us if you are interested in learning more about coverage for the S&P/ASX 200.
Today’s release also includes changes in the underlying model used to assess key remuneration issues at all rated companies.
GMI Model Enhancements – Remuneration
Recognizing the key role of executive remuneration in the governance profile of listed companies, GMI has added a number of new metrics to our model to enhance analysis of executive remuneration oversight and governance.
New metrics include a look at the interaction between the board’s remuneration committee and the audit and / or risk committee concerning whether the company’s executive remuneration plans provide incentives for undue risk. Express disclosure on whether the remuneration committee meets with the audit and / or risk committee risk is still in its infancy. Our first look into this question found that only 1.1% of companies covered by GMI worldwide disclosed such a policy or practice. Some developed markets do a little better, with 2% of US companies, 1.5% of UK companies and 1.5% of Australian companies disclosing this practice.
Other new metrics will enhance GMI’s analysis of how rated companies use peer groups in determining remuneration and how detailed the company disclosure is concerning how well executives have done in meeting specific performance targets. This is disclosed in only a minority of cases globally, with 14.8% of companies covered by GMI providing this detail. As there is greater emphasis on the relationship between pay and performance, we anticipate that this type of detailed disclosure will increase.
Additional new metrics examine whether rated companies require executives to hold awards earned under equity incentive plans for periods beyond the achievement of incentive targets. We now review whether these periods exceed certain benchmarks (12 months and 3 years) or require holding until retirement from the company. GMI research shows that this is still not a universal practice, with only 2.8% of all rated companies having such a policy for restricted stock plans and 5.1% for shares acquired via stock options. However, this is more common in the US with 4.7% of rated companies disclosing a policy for restricted stock and 9.2% for stock option plans. In the US it is more likely that the policy is to retain shares until retirement from the company, whereas holding periods in other markets tend to be time based. Interestingly, in Australia, all companies that had a holding period for restricted shares require them to be held for at least 3 years.
GMI is also now tracking the results of votes on “say on pay” and incentive plan approvals. Where there has been a significant vote against either of these within the last 18 months (defined by GMI as a vote against of 15% or more), it will result in an automatic red flag so clients are aware that there are significant shareholder concerns about remuneration and incentive schemes at such companies. In markets with annual “say on pay” votes, such as the UK and Australia, there have been considerably more significant negative votes (6.4% and 5.6% respectively) in the last 18 months than in other markets where there have largely only been incentive plans available for vote on an irregular basis (2.5% globally and 3.4% in the US). We anticipate this number to change in the future if, as expected, “say on pay” becomes a legal requirement for all US public companies.
Please don’t hesitate to contact us or simply reply to this email if you have any questions about these changes.