June 2010

Proxy Voting at ARIA 1 January to
30 June 2010

From 1 July 2011, the entity previously named the Australian Reward Investment Alliance (ARIA) was renamed the Commonwealth Superannuation Corporation (CSC) by Section 5 of the Governance of Australian Government Superannuation Schemes Act 2011. References throughout this section refer to the entity that was formerly named ARIA but which, on 1 July 2011, was renamed CSC.

1. Overview

An important component of ARIA’s ESG Policy and the responsibilities associated with fund investments, is the exercising of proxy voting rights.

Our approach to proxy voting is laid out in our Proxy Voting Policy, which includes a description of our practices and areas of specific concern to ARIA as a trustee acting for the ultimate benefit of our superannuation scheme members. In summary:

  • ARIA acts as a responsible corporate citizen and embraces our proxy voting responsibilities.
  • Where possible, we vote on all matters brought to shareholders by the companies in which we invest.
  • Where required, we engage with companies directly or collaboratively with other shareholders on matters that give rise to ESG risks.
  • We publicly communicate our ESG policy and practices and use our influence as one of Australia's largest superannuation funds to promote good ESG practice.
  • Consistent with this commitment, we will report to members at least twice a year on our voting activities and on ESG practice annually. This is the first such report on voting activity.

2. Proxy Voting in 2010: A Summary

Board composition and executive remuneration issues have remained at the top of the agenda for ARIA and ARIA managers during the period.

The Global Financial Crisis commencing in late 2008 has brought particular focus onto the importance of best practice board governance and the alignment of financial incentives with the interests of investors.

Voting information herein relates to the 'minor' Australian voting season for companies that report to 31 December of 2009 and for special company meetings held during the period.

In the period 1 January to 30 June 2010 ARIA's votes have been exercised on 211 resolutions at 45 meetings. The relative frequency of special or extraordinary general meetings has meant that fewer resolutions relating to directors and remuneration issues have been put to shareholders during this period.

 

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Figure 1: How ARIA voted versus company management recommendations

PeriodARIA votes vs recommendations by company management
  In Favour Against
Jan 10 – Jun 10 89% 11%
CY 2009 78% 22%
CY 2008 84% 16%

 

 

Figure 2: ARIA Proxy Voting in Australia 2008–2010

Proxy voting in Australia (2008-2010)


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Figure 3: ARIA voting by category of resolution – summary

Resolution typeIn Favour
%
Against
%
All resolutions 89 11
Remuneration reports 66 33
Director & executive remuneration 86 14
Director elections 92 8
Amend constitution 66 33
Other 100 0

 

 

Figure 4: ARIA Proxy Voting in Australia 2008–2010

ARIA Proxy Voting Statistics201020092008
  (Jan–Jun)    
Percentage of meetings where all resolutions were supported 67% 49% 55%
Percentage of meetings where incentive issues were considered 73% 81% 88%
Percentage of meetings where incentive issues were considered and were not supported by ARIA 16% 38% 30%
Percentage of meetings where remuneration reports were considered 73% 73% 81%
Percentage of remuneration reports that were not supported by ARIA 30% 27% 32%
Percentage of resolutions where director elections were not supported by ARIA 9% 19% 8%
Percentage of resolutions where director elections were supported 91% 81% 92%

 

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3. Remuneration

Remuneration Reports

Levels of remuneration paid to company executives have been a matter of increasing concern to investors in recent years. The economic conditions of the past two years in particular have revealed systemic flaws in remuneration structures and brought into even sharper focus longstanding concerns of investors, particularly those with fiduciary responsibilities to others, such as superannuation funds.

The belief that managers and directors should be fairly remunerated for their work in a manner that is reasonable, aligned with shareholder interests and tied to appropriate performance goals underlies ARIA’s policy in the exercise of our activities as a shareholder acting in the interests of scheme members.

In recent years, incentive issues that include company reporting on remuneration policy have been considered by shareholders at, on average, 80% of Australian company meetings.

ARIA continues to vote against the approval of remuneration reports where companies fail to demonstrate a clear relationship between remuneration policy and the interests of company investors.

Non-binding resolutions to adopt remuneration reports were introduced in July 2005. In assessing these resolutions ARIA expects to see clear and concise remuneration reports that disclose all relevant information, facilitate understanding of the company’s remuneration policy and are aligned with shareholder interests. Hurdles against which this expectation is assessed include:

  • Clear disclosure.
  • Sufficient detail regarding the remuneration of company directors and top executives.
  • Clear detail of total remuneration for Non-Executive Directors (NEDs) including the level of aggregate fees paid, cessation of retirement benefit accruals above legislated requirements, and any participation in executive option schemes.
  • Clear disclosure of total remuneration for chief executives including short and long term incentives, details of performance hurdles and termination benefits.

In the year to 30 June 2010 ARIA votes have been exercised in respect of 33 remuneration reports, 10 (30%) of which have not been supported.

Non-Executive Director (NED) Remuneration

All 11 requests for increases in the maximum of aggregate fees paid to non executive directors have been approved by ARIA in the first half of 2010.

Incentive Plans

When supporting such plans ARIA looks for the presence of adequate performance hurdles, clear explanations for the terms of incentive payments, their relationship to shareholder returns and responses to concerns raised in the past by ARIA and others.

In the year to 30 June 2010, 33 resolutions have been considered regarding executive and director remuneration and have drawn only 1 rejection, which related to an inadequately explained high level of CEO remuneration.

One company meeting, where we had lodged votes against six resolutions relating to the terms of payments to directors, was cancelled.

 

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4. Director Elections

Of 106 proposals for the election of directors put to shareholders in the year to 30 June 2010, ARIA has rejected 9 (8%).

Reasons for voting against the election or re election of directors include inadequate representation by independent directors, often coupled with other shortcomings such as poor performance, inadequate disclosure on financial and governance matters and a failure to address concerns raised by investment managers and other advisers in the past.

 

Figure 5: ARIA voting by category of resolution – summary

Resolution typeForAgainstTotal
Remuneration reports 23 10 33
Non–Executive Director (NED) Remuneration 11 0 11
Incentive Plans 32 7 39
Director Elections 97 9 106
Amend constitution 2 1 3
Other 19 0 19