The Annual General Meeting has always been a cornerstone of corporate governance, a mandatory gathering under the Corporations Act 2001 (Cth). However, its role has evolved. Today, the AGM is a strategic touchpoint where shareholder sentiment is publicly tested, and nowhere is this scrutiny more intense than on the resolution for the remuneration report. As noted by AFR columnist James Thomson, this vote has effectively become an "annual referendum on sentiment around a company” as a whole.
For directors and Company Secretaries, understanding this landscape is critical. In 2024, ASX300 companies saw 40 ‘strikes’ on their remuneration reports, the second-highest number since the two-strikes rule was introduced (The Rewards Practice). With this trend showing no signs of slowing, a proactive and strategic approach to remuneration is no longer optional, it's essential for maintaining shareholder trust and confidence.
A "strike" occurs when 25% or more of shareholders vote against a company's remuneration report. Two consecutive strikes trigger a board spill resolution, a significant governance event that no company wishes to face. The primary drivers for shareholder dissent are often a combination of weak shareholder returns coupled with a perception of misaligned or preferential executive bonuses and short-term incentives.
This perception can be further intensified by recent changes to Employee Share Scheme (ESS) rules, which have increased scrutiny on awards to Key Management Personnel (KMPs) and Directors.
Companies experiencing these conditions must anticipate questions and prepare robust communication plans well in advance of their AGM to clearly articulate the rationale behind their remuneration structure.
In this highly scrutinised environment, proxy advisors such as ISS, Glass Lewis, Ownership Matters, and ACSI play a pivotal role in influencing voting outcomes. These firms typically publish their updated voting guidelines in August or September, setting the tone for the upcoming AGM season. Their current focus areas include pushing for greater director independence and requiring transparent disclosure of the thresholds for executive incentives.
Given their influence, proactively engaging with these advisors before your Notice of Meeting is finalised is a crucial risk mitigation strategy. This dialogue can help uncover potential red flags and clarify governance expectations, allowing you to address concerns before they translate into a negative voting recommendation.
One of the greatest challenges in managing a contentious vote is the timing of proxy lodgements. Nominees and custodians, who hold a significant portion of shares, often lodge their votes in the final 24-48 hours before the deadline. This leaves boards with very little time to react to an unexpected negative trend.
This is where technology and data become indispensable. A proactive strategy involves utilising a shareholder analytics service to receive real-time updates on the status of nominee and custodian instructions. This early intelligence provides the crucial time needed to engage directly, clarify issues, and lobby for support before it is too late. Furthermore, encouraging directors and major supportive shareholders to cast their votes early provides a clearer picture of the likely outcome and helps avoid last-minute surprises.
Navigating the complexities of remuneration resolutions requires diligent preparation, transparent communication, and strategic engagement.
In summary companies planning remuneration report resolutions when experiencing weak shareholder returns coupled with perceptions of preferential executive remuneration need to be mindful to prepare communications and/or lobbying plans.
Additionally, companies should proactively engage with shareholders after a strike, or even when 10% vote against the remuneration report, to gather feedback and build understanding ahead of the next AGM.
By understanding shareholder sentiment, consulting with proxy advisors, and closely monitoring vote movements with advanced analytics, your board can effectively mitigate risk and use the AGM as an opportunity to build, rather than erode, shareholder trust.