Proxy Voting Report July to December 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.

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.

Voting information herein relates to the major Australian voting season for companies that report to 30 July 2010 and for special company meetings held during the period. This information is presented within the context of voting for the full 2010 year.

In the period 1 July to 31 December 2010 ARIA's votes have been exercised on 655 resolutions at 124 meetings.

Figure 1: How ARIA voted versus company management recommendations

PeriodNo. of ARIA votes vs recommendations by company management
  In Favour Against
Jun: 10 – Dec: 10 89% 11%
CY 2010 89% 11%
CY 2009 78% 22%
CY 2008 84% 16%

 

 

Figure 2: ARIA Proxy Voting in Australia 2008–2010

Proxy voting chart 2008-2010

Figure 3: ARIA Proxy Voting in Australia 2008–2010

ARIA Proxy Voting Statistics2010201020092008
  (Jul - Dec) Full year    
Number of company meetings where votes were submitted 124 169 134 241
Number of resolutions voted on 655 866 659 1190
Percentage of meetings where all resolutions were supported 65% 66% 49% 55%
Percentage of meetings where incentive issues were considered 88% 80% 81% 88%
Percentage of meetings (where incentive issues were considered) where incentive issues were not supported by ARIA 26% 21% 38% 30%
Percentage of meetings where remuneration reports were considered 81% 77% 73% 81%
Percentage of remuneration reports that were not supported by ARIA 26% 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

Remuneration Reports

Levels of remuneration paid to company executives have been a matter of increasing concern to investors in recent years. Recent economic conditions 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 SIS 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 31 December 2010 ARIA votes have been exercised in respect of 133 remuneration reports, 36 (27%) of which have not been supported.

Non-Executive Director (NED) Remuneration

All but one of 30 requests for increases in the maximum of aggregate fees paid to non executive directors have been approved by ARIA in 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.

Between 1 July and 31 December 2010, ARIA voted on 122 remuneration proposals (not including remuneration reports), supporting 84 (69%) of those resolutions and rejecting 38 (31%). The most common reasons for not supporting these proposals included poor disclosure, opaque or poorly explained performance metrics and excessive remuneration relative to performance and the practices of market cap peers.

155 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.

4. Director Elections

ARIA considered 290 proposals for director elections during the period.

  • ARIA supported the election of 262 (90.3%) directors and voted against 28 (9.7%).
  • 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.

5. Constitutional Amendments

During the period a number of companies sought approval for constitutional amendments to reduce the maximum size of their boards, possibly in anticipation of amendment to the Corporations Act that will reduce impediments to the nomination of external candidates for board positions.

Seventy requests for constitutional amendments were put to shareholders during the period. ARIA rejected 7 (10%) of those resolutions. One company withdrew a resolution from consideration following shareholder engagement.