Highlights from the world 
of Proxy Papers you can’t afford to miss: Commonwealth Bank, Flight Centre, Slater & Gordon and Michael Hill International Limited.
Commonwealth Bank of Australia
Australian Securities Exchange – November 9
Much like the focus on large lenders the world over, the Australian banking sector has come under increased scrutiny lately, the intensity of which has been amplified by recent banking and financial planning controversies and senate inquiries, as well as the levels of remuneration paid to executives of the big four banks. As a result of this focus, and given the clear impact the operations of the banking sector have on the country’s economy and individual consumers, calls from all stakeholders for a significant cultural and behavioural change in the industry are growing. In response, CBA has included a new measure—’People and community’—in its long-term incentive plan, which will assess the company’s progress in this area over the ensuing four years. Given that this measure represents the second ‘soft’ metric to be included in the plan, proponents of hard financial metrics may voice concerns over an increased emphasis on non-financial components; however, others may view this as a company positively tailoring its pay structure to align it with company strategy and meet stakeholder expectations in the banking sector. Indeed, the company has previously had success in similar circumstances: it was only after a customer service component was added to CBA’s long-term incentive plan that the Company’s ranking in this area improved. If this trend is anything to go by, then CBA’s results may be proof that ‘if it ain’t linked to pay, it ain’t going to happen.’
Flight Centre Limited
Australian Securities Exchange – November 9
Australian companies have taken myriad approaches to complying with the ASX Corporate Governance Council’s Recommendation 2.2 on disclosing a board skills matrix. Oftentimes, companies appear to merely be providing boilerplate disclosure, while others still simply disclose a list of skills in aggregate without attribution to any individual director. However, credit must be given where it is due, and certain other companies are adhering not just to the letter, but also the spirit of the recommendation. In these instances, much more meaningful disclosure is offered, providing shareholders with useful context as to the value of particular skills to the board and the company. Flight Centre took a unique approach to this particular disclosure challenge in their FY2016 corporate governance statement, disclosing a board skills matrix that matches the template CGI Glass Lewis includes in our reports. While of course living by the old adage that self-praise is no praise, if imitation remains the sincerest form of flattery, then we’ll take the compliment.
Slater & Gordon Limited
Australian Securities Exchange – November 4
It may take Slaters, the beleaguered litigation firm, a long time to shake the ignominy that goes with writing down the value of its A$1.225 billion acquisition of Quindell by a whopping A$814 million nine months after its completion. However, while questions might always remain about the impact of such a decision, investor focus may well shift to remuneration practices in advance of the company’s upcoming AGM.
In August 2016, the company’s board approved a one-off retention award to the CFO, comprised of rights and options with a face value of A$1.4 million, which vest based on the company’s TSR performance relative to the S&P/ASX 300 over a 13-month period. While the brevity of the vesting period may raise eyebrows, it is the timing of the award that is sure to be heavily scrutinized by shareholders— the beginning of the performance period (May 1, 2016) conveniently corresponds to the last day prior to the company’s announcement that it had successfully agreed amendments to the terms of its existing Syndicated Facility Agreement.
The company’s share price, which had plummeted from the lofty heights of A$7.85 in early 2015, doubled on May 2, 2016, closing at A$0.590 per share, ensuring that the exercise price of A$0.2763 (based on the 20-day VWAP prior to May 1, 2016) for the options began to look particularly juicy. Since then, the company’s share price has toiled once more, reducing the potential value of the award (if any) upon vesting; however, it remains to be seen if shareholders, still reeling from a drastic reduction in the value of their holdings over the past 18 months, will accept what might well be viewed as a ‘cherry-picked’ performance period, which has the double impact of maximising the potential uplift to the CFO both in terms of absolute pay out and TSR performance against the index peer group. All of this in addition to paying a bonus of A$89,600 to the CFO for his role in finalising the amendments to the Syndicated Facility Agreement is likely to place Slater’s remuneration report under the spotlight.
Michael Hill International Limited
Australian Securities Exchange and New Zealand Exchange – October 31
Shoppers love visiting Michael Hill and Emma & Roe stores to splurge on jewelry. The parent company, Michael Hill International Limited, is doing some splurging itself: it has included a hefty termination package for outgoing CEO Michael Parsell on the AGM agenda. Instead of a gold watch, Mr. Parsell would get two years’ worth of fixed remuneration on top of the 12 months’ pay that he has already received in lieu of serving out his notice period. Having grown the company from just three stores to over 300 outlets, Mr. Parsell has proved to be the jewel in the crown at Michael Hill; nevertheless, treating payments in lieu of notice separately from termination may raise eyebrows. Perhaps in recognition of this, the controlling Hill family are giving other shareholders a significant discount: the additional payments have been split in half, with the company as a whole being asked to pay for one of them, and the family covering the rest themselves. Quite the mid-season sale!