05 Remuneration

The remuneration of directors and executives should be transparent, fair and reasonable.

FMA Guidelines

The board should have a clear policy for setting remuneration of executives (including executive directors) and non-executive directors at levels that are fair and reasonable in a competitive market for the skills, knowledge and experience required.
Publicly owned entities should publish their remuneration policies on their websites. Executive (including executive director) remuneration should be clearly differentiated from non-executive director remuneration.
Executive (including executive director) remuneration packages should include an element that is dependent on entity and individual performance.
No non-executive director should receive a retirement payment unless eligibility for such payment has been agreed by shareholders and publicly disclosed during his or her term of board service.

Additional Forum Guidelines for NZ listed companies

Remuneration Policy

The board should describe how the remuneration policy is aligned with the company’s long-term strategic objectives.
The company should disclose annually how awards granted to senior management and the CEO were determined and deemed appropriate when reconciled to key performance indicators and in the context of the company’s underlying performance. .
Share-based remuneration schemes should be subject to shareholder approval before being implemented.

Executive Remuneration

A clear rationale should be provided for any material increase in fixed remuneration of executives.
All performance-based remuneration schemes must be underpinned by appropriately aligned and relevant performance hurdles.
The remuneration committee should judge where to position their company relative to other companies. But they should use such comparisons with caution, in view of the risk of an upward ratchet of remuneration levels with no corresponding improvement in corporate and individual performance, and should avoid paying more than is necessary.
Performance measurement should integrate risk considerations so that there are no rewards for taking inappropriate risks at the expense of the company and its shareholders. Performance related elements should be rigorous and measured over timescales, and with methodologies, which help ensure that performance pay is directly correlated with sustained value creation. Companies should include provisions in their incentive plans that enable the company to with-hold the payment of any sum, or recover sums paid (‘clawback’), in the event of serious misconduct or a material misstatement in the company’s financial statements.
The board should disclose the company policy concerning ownership of shares by the CEO and senior management. This should include the company policy as to how share ownership requirements are to be achieved and for how long they are to be retained. The use of derivatives or other structures that enable the hedging of an individual’s exposure to the company’s shares should be discouraged.

Termination of contract

Termination payments should not exceed 12 months’ fixed pay. Termination payments should not be paid where an executive retires from office, has resigned, or has been terminated for poor performance.

Board remuneration

Performance-based pay should not be granted to non-executive directors.
If shares are included as part of remuneration to non-executive directors, these should be fully vested on the grant date, subject to applicable multi-year holding periods and disclosed.