June 2011

Proxy Voting Report January to June 2011

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 exercise 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 the 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 ad 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 report addresses activity undertaken on the PSS, CSS, PSSap portfolio only between 1 January and 30 June 2011.

2. Proxy Voting in 2011: A Summary

The majority of contentious resolutions continue to relate to the election of directors and incentive issues, including remuneration reports. During the period ARIA's votes were exercised on 263 resolutions at 55 meetings of 50 companies.

  • ARIA supported 84% of resolutions put to shareholders.
  • ARIA supported all resolutions at 37 (67%) of meetings.


The number of ARIA votes in favour of recommendations by company management and the number against are summarized in Figure 1.


Figure 1: How ARIA voted versus company management recommendations

PeriodNo. of ARIA votes vs recommendations by company management
  In Favour Against
Jan–Jun 2011 222 (84%) 41 (16%)
CY 2010 770 (89%) 96 (11%)
CY 2009 517 (78%) 142 (22%)
CY 2008 1005 (84%) 185 (16%)



Figure 2: ARIA Proxy Voting in Australia 2008–2010

Proxy voting chart 2011


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Figure 3: ARIA Proxy Voting in Australia 2008–2011

ARIA Proxy Voting Statistics2011 (Jan-Jun)2010
Full Year
2009
Full Year
2008
Full Year
Number of company meetings where votes were submitted 55 169 134 241
Number of resolutions voted on 263 866 659 1190
Percentage of meetings where all resolutions were supported 67% 66% 49% 55%
Percentage of meetings where incentive issues were considered 66% 80% 81% 88%
Percentage of meetings (where incentive issues were considered) where incentive issues were not supported by ARIA 39% 21% 38% 30%
Percentage of meetings where remuneration reports were considered 60% 77% 73% 81%
Percentage of remuneration reports that were not supported by ARIA 27% 28% 27% 32%
Percentage of resolutions where director elections were not supported by ARIA 10% 9% 19% 11%
Percentage of resolutions where director elections were supported 90% 91% 81% 89%

 

3. Remuneration

Corporations Act Amendments (Improved Accountability on Director and Executive Remuneration) Bill
Amendments to the Corporations Act passed the Senate on 20 June 2011. Shareholders now have the right to vote on whether an entire board should stand for re-election where a company receives more than 25% of votes against its remuneration report in two consecutive years. The reforms also prohibit key management personnel from voting on the remuneration report, any two strikes board spill and from hedging incentive remuneration. These changes have removed the ability for executives to vote and approve their own pay.

Shareholder approval is now also required for a declaration of "no vacancy". The "no vacancy rule" allows a board to claim that it has no vacant positions even though the maximum number of directors allowed by the constitution has not been reached. The new laws include improved disclosure on the use of remuneration consultants in listed companies and proxy holders will be required to cast all their directed proxies on company resolutions, thus removing the ability of non-chair proxy holders to selectively vote proxies they hold.

Remuneration Reports
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.

Indications this expectation has been met 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 beyond statutory requirements and clear justification for participation in schemes that might better align their interests with those of executives rather than shareholders, such as share 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 period Jan to Jun 2011, ARIA's votes were exercised in respect of 33 non-binding resolutions for remuneration reports. Nine of those votes were against the resolutions because of a failure by the reports to meet the requirements listed above.

Executive Remuneration
During the period ARIA's votes were submitted on a total of 33 executive remuneration proposals (not including remuneration reports).

  • ARIA voted in favour on 24 (73%) occasions and against 9 (27%) of these proposals.
  • The most common reasons for not supporting these proposals included poor disclosure, opaque and unexplained performance metrics and unexplained and excessive remuneration in comparison with performance and the practices of market cap peers.

Non-Executive Director (NED) Remuneration
Investors were asked to approve an increase in the maximum aggregate level of fees that could be paid to non-executive directors at four meetings during the period. ARIA found all such requests reasonable and voted in favour of those resolutions. Thirteen other resolutions in relation to NED remuneration were also put forward, four of which were rejected by ARIA on the basis of failure to demonstrate alignment with the interests of the companies and their investors rather than those of management.

 

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4. Director Elections

ARIA considered 112 proposals for director elections during the period.

  • ARIA supported the election of 101 (90%) directors and voted against 11 (10%).
  • Reasons for voting against the election or re-election of directors included poor board composition, poor performance, inadequate disclosure on financial and governance matters and a failure to address concerns raised upon engagement. ARIA staff are focusing particular scrutiny on board members who undertake commitments to multiple boards and to the activities of affiliated directors, particularly in key governance areas.

5. ASX Corporate Governance Council principles and recommendations on diversity

The ASX has introduced a number of changes to its Corporate Governance Principles and Recommendations (ASX Principles), including new recommendations and other amendments relating to diversity. The changes apply to a listed entity's first financial year commencing on or after 1 January 2011 and require reporting on diversity policy, measurable objectives for achieving gender diversity and progress in implementation. Companies are not required to meet quotas for the appointment of women at various levels within an organisation but are required to annually disclose the proportion of women on the board, in senior management and employed throughout the organisation on an "if not why not" basis.

 

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