Investors warning to directors

11 ASX Top 200 companies receive first strikes against remuneration reports

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published December 5, 2013 9:25 am AEDT

Investors have given company directors another warning over poor remuneration practices.

Eleven of the top 200 companies recorded a first strike during this year's annual shareholder meeting season, after more than 25% of shares were voted against their remuneration reports. Companies outside the top 200 fared worse, with 15 recording their second strikes so far this year.

But company directors and their advisers say the two strikes rule is being misused by shareholders. Institute of Company Directors spokesman Steve Burrell says the legislation is being abused by shareholders with ulterior motives. "It is being used as a protest vote about issues entirely unrelated to executive pay," he told the Australian Financial Review.

A 40% protest vote against David Jones (ASX: DJS) has been linked to share trading by two non-executive directors and the shock decision of CEO Paul Zahra to resign, rather than anything to do with the remuneration report.

Cynical shareholders may well say that a protest vote against the remuneration report for issues unrelated to pay is payback for directors and CEOs abusing their powers in the past, with ordinary shareholders having no avenue of complaining back then. Shareholders have had enough of company executives not aligning their interests with them, feeling that if they have had a tough year, so should the stewards of their company. Unreasonable bonuses, excessive pay packages, or low hurdles being set to achieve large increases in remuneration all attract the ire of shareholders.

Companies in the top 200 that saw protest votes against them include Alumina (ASX: AWC), Karoon Gas (ASX: KAR), Cabcharge (ASX: CAB), SCA Property Group (ASX: SCP), Forge Group (ASX: FGE), David Jones, Automotive Holdings (ASX: AHE), Southern Cross Media (ASX: SXL), Aurizon (ASX: AZJ) ex-QR National, and Super Retail Group (ASX: SUL).

Foolish takeaway

Governance experts suggest that the results reflect that the top 200 companies are doing a better job of listening to their shareholders, and stamping out shareholder-unfriendly practices. But investors should be wary of companies that attract protest votes. That could be a sign that the board and executives care little about their shareholders.

Automatic Renewal

By taking up this offer, you will also be enrolled in our auto-renewal program, which is our way of making your ongoing subscription easier by ensuring uninterrupted service. Don't worry, though – you're not locked in, and can cancel your auto-renewal at any time before each 'anniversary' date without question or penalty.