Australian football league share price

Sustainability Report

Davis, C 2013, The business case for sustainability, retrieved from .

Doerr, P & Meehan, M 2018, ‘A conversation with Michael Meehan of GRI’, Mind your business: Episode 3, retrieved from .

Crowther, D & Aras, G 2008, Chapters 1-6 1st edn, Bookboon.

Horrigan, B 2010, ‘Chapter 2: Concepts and elements of corporate social responsibility’, in Corporate Social Responsibility in the 21st Century: debates, models, and practices across government, law and business, Edward Elgar Publishing, pp. 34–72.

Sherman, R 2009, ‘The global reporting initiative: What value is added?’, International Business & Economics Research Journal, vol. 8, no. 5, pp. 9–22.

http://www.ekvilib.org/wp-content/uploads/2018/03/GRI-standardi-2016.pdf

https://kaplananz.zoom.us/rec/share/6s1qJa3t-CRLWa_O7RrFXP4KEKnBT6a8hiQdqPdZztXFoTx1hCB872S5zZRcKyA

https://kaplananz.zoom.us/rec/share/tfUkD56q_ThJGKOOtBjFdZFxBdjHX6a80HBMrPAFyU-fJLAF8lq8i8xZFcxwcF5X?startTime=1591944653000

Remuneration

Week 12 Workshop

MBA402 Governance, Ethics and Sustainability

COMMONWEALTH OF AUSTRALIA Copyright Regulations 1969

WARNING This material has been reproduced and communicated to you by or

on behalf of Kaplan Business School pursuant to Part VB of the Copyright Act 1968 (the Act).

The material in this communication may be subject to copyright under the Act. Any further reproduction or communication of this material by you may be the subject of copyright protection under

the Act.

Do not remove this notice.

2

• What does American business magnate Warren Buffet mean when he says:

Small Group Discussion

Too often, executive compensation is ridiculously out of line with performance.

• In groups, think of an idea the Australian Football League could implement to give new clubs a chance to successfully compete.

The Australian Football League has a problem. Australian Rules Football is rapidly evolving into a truly national sport with two new clubs from outside Victoria – Brisbane and West Coast – being admitted into the competition.

Three Victorian clubs – Carlton, Essendon, and Hawthorn – have won seven of the last eight premierships. These three clubs are among the richest in the competition and therefore able to pay the highest salaries to players.

The League is concerned that if Carlton, Essendon, and Hawthorn continue to dominate the competition then the new clubs will struggle to build local fan bases and ultimately fail.

Small Group Challenge Melbourne, Australia 1987

Compensation

• Compensation is an award for service. • Companies must set director and

executive remuneration at levels sufficient to attract and retain talent.

• But they must also ensure director and executive remuneration is not excessive nor misaligned with shareholder interests.

Principle 8 8. Remunerate fairly and responsibly

Companies should pay director remuneration sufficient to attract and retain high quality directors and design their executive remuneration to attract, retain and motivate high quality senior executives and to align their interests with the creation of value for shareholders.

Remuneration Policy

• Companies should have a formal and transparent process for developing their remuneration policies and for designing the remuneration packages of directors and senior executives.

• No director or senior executive should be able to decide his or her own remuneration.

Disclosure

• The relationship between director and executive remuneration and performance, and how remuneration packages are aligned to the creation of value, should be clearly explained to shareholders.

• What does American comedian Steve Martin mean when he says:

Small Group Discussion

All I’ve ever wanted was an honest week’s pay for an honest day’s work.

• In groups, figure out how Dan should manage Jason’s pay dissatisfaction.

Dan Price, CEO of credit card processing company Gravity Payments, has a problem. Jason Haley, an entry level employee earning $35,000 a year, is skulking around the office in a bad mood.

Dan approaches him. “Seems like something’s bothering you.” “Yeah. You’re ripping me off,” Jason says. Dan is shocked and hurt by the accusation. “Your pay is based on market rates,” Dan says. “If you have different

data, please let me know. I have no intention of ripping you off.” “The data doesn’t matter,” Jason replies, “I know your intentions are

bad. You brag about how financially disciplined you are, but that just translates into me not making enough money to lead a decent life.”

Small Group Challenge Seattle, US 2011

Income Inequality

• Income inequality refers to the extent to which income is distributed in an uneven manner among a population.

• Despite widely held views that Australia is an egalitarian society, several indicators suggest that income inequality is relatively high and not falling over the long term.

CEO Pay

• The average total pay for chief executives in Australia’s top listed companies is around 63 times an average worker’s earnings.

• The average total pay for chief executives in U.S. top listed companies is around 350 times an average worker’s earnings.

Recommendation 8.1

8.1 The board of a listed entity should: (a) have a remuneration committee which: (1) has at least three members, a majority of whom are independent directors; and (2) is chaired by an independent director,

Recommendation 8.1

8.1 and disclose: (3) the charter of the committee; (4) the members of the committee; and (5) as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or

Recommendation 8.1

8.1 (b) if it does not have a remuneration committee, disclose that fact and the processes it employs for setting the level and composition of remuneration for directors and senior executives and ensuring that such remuneration is appropriate and not excessive.

Board Committees

• All directors are equally responsible for the governance of the company.

• Board committees can provide independent and objective corporate governance supervision.

• Board committees prevent management domination of board decisions.

Remuneration Committee

• The remuneration committee makes recommendations to the board regarding: o the company’s remuneration framework

for directors. o the remuneration packages to be

awarded to senior executives. o equity-based remuneration plans for

senior executives and other employees.

• What does Canadian economist John Kenneth Galbraith mean when he says:

Small Group Discussion

The salary of the chief executive of a large corporation is not a market award for achievement. It is frequently in the

nature of a warm personal gesture by the individual to himself.

• In groups, suggest a course of action the shareholders could take regarding the remuneration proposals.

Commonwealth Bank shareholders have a problem. Their board proposes to link CEO Ian Narev’s and other senior executive’s long- term bonuses to ‘soft targets’ and new performance hurdles relating to people and culture. Narev was paid $12.3 million last year, significantly more than other Big Four Bank bosses.

The ‘culture bonus’ is a key concern of shareholders as they believe it will reward executives for simply doing their job at the same time as bank returns are falling. The shareholders are also concerned that directors and senior executives will receive multi- million dollar bonuses despite a series of recent scandals.

The remuneration proposals are presented to the shareholders at the company’s AGM in a remuneration report.

Small Group Challenge Sydney, Australia 2016

Incentives • Companies seeking to motivate

directors and senior executives to make value-maximising decisions often tie remuneration to share price performance through equity-based remuneration.

• Executives that agree to equity-based remuneration can become very exposed to the company’s shares price.

Recommendation 8.2

8.2 A listed entity should separately disclose its policies and practices regarding the remuneration of non- executive directors and the remuneration of executive directors and other senior executives.

Executive Remuneration

• Remuneration packages for executive directors and senior executives should: o include an appropriate balance of fixed

and performance-based remuneration. o be reasonable, fair, and relative to the

scale of the company’s business. o be careful to ensure any equity-based

remuneration does not lead to ‘short termism’ or the taking of undue risks.

Non-Executive Remuneration

• Remuneration packages for non- executive directors should: o include cash fees, superannuation

contributions and non-cash benefits. o reflect the time commitment and

responsibilities of the role. o not include performance-based

remuneration but may include equity- based remuneration.

Non-Performance

• Companies should include in their disclosures regarding the remuneration of executive directors and other senior executives, a summary of their policies and practices regarding the deferral of performance-based remuneration and the reduction, cancellation or clawback of performance-based remuneration in the event of serious misconduct.

Shareholder Approval

• The Corporations Act requires listed companies to make detailed disclosure in their remuneration reports of their remuneration policies for key management personnel.

• Remuneration reports are subject to an advisory vote by shareholders and a ‘two-strikes rule’.

Captains

Play Video

https://youtu.be/G_9YSiF1RTM
https://youtu.be/G_9YSiF1RTM
https://youtu.be/G_9YSiF1RTM
• Do you agree with Captain Edward J. Smith of the RMS Titanic when he says:

Small Group Discussion

The captain goes down with the ship.

• In groups, come up with a strategy to help Keith retain his recently acquired wealth.

Keith Olsen, CEO of telecom services startup Switch and Data Facilities Company Inc., has a problem. The company’s share price has risen dramatically. From a low of $8.60 in mid March, shares more than doubled to $18.17 three months later. Further gains seem likely and Keith boosts the guidance he has given Wall Street analysts.

But behind the wild jump in Switch and Data’s share price Keith is well aware that revenue growth is slowing and debt payments and other costs are rising.

He personally owns 600,000 shares in the company that are currently worth almost $11 million but fears he could soon lose this fortune as rapidly as he gained it.

Small Group Challenge Tampa, US 2008

Hedging

• A hedge is an investment to reduce the risk of adverse price movements in an asset, usually by taking an offsetting position in a related security such as an option.

• Hedging is similar to taking out an insurance policy.

Executive Hedging

• Companies grant executives shares as remuneration largely because they want them to have a stake in the company's success or failure.

• Hedging by directors and senior executives reduces their exposure to share price drops in a way that violates the spirit of the compensation.

Recommendation 8.3 8.3 A listed entity which has an equity-

based remuneration scheme should: (a) have a policy on whether participants are permitted to enter into transactions (whether through the use of derivatives or otherwise) which limit the economic risk of participating in the scheme; and (b) disclose that policy or a summary of it.

Limiting Risk

• Permitting directors and senior executives in an equity-based remuneration scheme to hedge or otherwise limit the economic risk of participating in the scheme may be counterproductive and blur the relationship between remuneration and performance.

Shareholder Engagement

• The relationship between remuneration and performance and how it is aligned to the creation of value for shareholders should be clearly explained, otherwise shareholders may be inclined to vote against remuneration package proposals.

Playtime

Week 12 Workshop

MBA402 Governance, Ethics and Sustainability

“I wasn’t terminated for leaking earnings information,” Denise Summers says, “I never even had access to Meridian’s performance data. Veda fired me because she accidently sent me an email intended for Marco Nolan.”

“What did the email say?” you ask. “Nothing important. But that email was part of a long email conversation

going back to before you started as CEO.” “Okay. So what was the email conversation about?” “The new board’s plan to rip off Meridian Group,” Denise replies. “What?” you splutter, choking on a sip of tea. “Turns out Veda and the directors have been planning this whole time to

keep Meridian solvent just long enough to make themselves rich before letting the company fail.”

Denise’s conspiracy theory against the board doesn’t seem plausible to you. “Veda sold her shares to become an independent chair when we restructured the board. What you’re saying makes no sense.”

She is bothered by your unwillingness to believe her.

“Look, Veda simply transferred her shares to Marco for safekeeping. It’s all in the emails. She explains how the new board has to fool everybody - the employees, the shareholders, the market - into believing Meridian was transforming itself into a best practice organisation to get the share price up to $45. At that point the board intends to seek shareholder approval for a remuneration report rewarding them with a heavily incentivised equity-based remuneration scheme. The directors plan to hedge their equity positions to protect their wealth when the share price collapses again.”

You think about this for a moment. It begins to seem less unbelievable. Denise continues, “Marco suggests in the emails that for the plan to work

he thinks the board should appoint a new CEO. Someone with high integrity who the shareholders will trust. It seems you were never meant to save Meridian Group. You were just there to help the new board with their plan.”

Your pulse thumps in your temples as the pieces fall into place. “I can’t believe I didn’t see this coming. I should have taken steps to protect Meridian against the new board while I was still the CEO.”

“What steps?” Denise asks.

Group One In your group, prepare a plan to protect Meridian from the board Focus on the following:

• Explain the concept of compensation • Discuss Principle 8 of the ASX Corporate

Governance Principles and Recommendations • Propose three things Meridian could do to

implement the Principle

Group Two In your group, prepare a plan to protect Meridian from the board Focus on the following:

• Explain the concept of income inequality • Discuss Recommendation 8.1 of the ASX Corporate

Governance Principles and Recommendations • List three matters a remuneration committee would

make recommendations to the Meridian board in regard to

Group Three In your group, prepare a plan to protect Meridian from the board Focus on the following:

• Explain the concept of incentives • Discuss Recommendation 8.2 of the ASX Corporate

Governance Principles and Recommendations • Propose three things Meridian could do to

implement the Recommendation

Group Four In your group, prepare a plan to protect Meridian from the board Focus on the following:

• Explain the concept of hedging • Discuss Recommendation 8.3 of the ASX Corporate

Governance Principles and Recommendations • Propose three things Meridian could do to

implement the Recommendation

Group One Group Two

Group Three Group Four

“So let me get this straight,” Denise says, “if the board puts the remuneration report to a shareholder vote and they vote no… then what?”

“It counts as a first strike,” you explain. “The vote is only advisory but first strikes are very rare for large publicly listed companies and a no vote may draw enough media attention to thwart the board’s plans.”

“You have to tell the shareholders,” Denise says. “Meridian Group is holding its AGM this morning. You have to go and tell them.”

“No I don’t,” you shoot back, “I’m not their CEO anymore.” You stand up and head for the door.

“Do you remember what I said about you to all those employees that wanted to storm out of the building and leave you on your very first day?”

You stop. That first day at Meridian seems like a lifetime ago. “I told them you were the real thing. And they stayed and they worked and

they trusted. So where the hell do you think you’re going now?”

• Restructure your work into an address to the Meridian shareholders.

“Security!” Veda bellows, “Security! Remove that person from the building immediately!”

A security officer walks towards you. The shareholders look puzzled. They can’t understand Veda’s behaviour. Vincent joins in. “This is a meeting of Meridian shareholders! That person

is no longer CEO and is not a shareholder and has no business here!” You speak to the shareholders directly. “None of you will be shareholders

for much longer if you vote in favour of this remuneration report.” “Silence!” Veda screams. “Wait a minute,” Ruth Laughton interrupts, “what are you talking about?” “I’m talking about this board’s plan to pay themselves a fortune under this

remuneration scheme then jump ship, abandoning Meridian to financial ruin.” “I think you’d better take the microphone and explain yourself,” Ruth says.

• Deliver your presentation to the shareholders of Meridian Group.

The shareholder meeting erupts into chaos at the end of your presentation. The shareholders all call loudly for an immediate vote on the remuneration report.

Veda slumps back into her seat saying nothing. Marco and Eric both fumble through their phone contacts searching for their lawyers. Guillermo, Mitch, Tim, and Vincent all appear extremely nervous.

Ruth rises to her feet, thanks you, and takes the microphone to address the shareholders. “Our board has put before us a remuneration report for our approval. We must therefore cast our votes by show of hands. All those in favour of the remuneration report please raise your hands. Thank you. All those against the remuneration report please raise your hands. Thank you.”

Ruth tallies the votes. “The remuneration report is …”

Remuneration
COMMONWEALTH OF AUSTRALIA�Copyright Regulations 1969��WARNING�This material has been reproduced and communicated to you by or on behalf of Kaplan Business School pursuant to Part VB of the Copyright Act 1968 (the Act).��The material in this communication may be subject to copyright under the Act. Any further reproduction or communication of this material by you may be the subject of copyright protection under the Act.��Do not remove this notice.
Small Group Discussion
Small Group Challenge
Compensation
Principle 8
Remuneration Policy
Disclosure
Small Group Discussion
Small Group Challenge
Income Inequality
CEO Pay
Recommendation 8.1
Recommendation 8.1
Recommendation 8.1
Board Committees
Remuneration Committee
Small Group Discussion
Small Group Challenge
Incentives
Recommendation 8.2
Executive Remuneration
Non-Executive Remuneration
Non-Performance
Shareholder Approval
Captains
Small Group Discussion
Small Group Challenge
Hedging
Executive Hedging
Recommendation 8.3
Limiting Risk
Shareholder Engagement
Playtime