On November 9, 2016, the shareholders of Australia’s largest company, and the world’s tenth-largest bank, revolted. The Commonwealth Bank’s shareholders were reacting to the board’s annual Remuneration Report, which contained a recommendation that the CEO be granted a bonus based on what critics saw as “soft” measures. Other firms have ventured down this path, including the conglomerate Wesfarmers, with its 200,000-plus staff, and the global hospital operator Ramsay Health Care. Should CEO performance be assessed only on “hard” measures? Should soft measures be part of a CEO’s scorecard? Is there a framework that might assist you to tackle the CEO appraisal task? CEO incentives have traditionally been evaluated against objective data — also labelled “hard.” Take, as an example, the world’s largest mining company by market capitalization, BHP Billiton. Its Remuneration Committee employs several key performance indicators (KPIs) to guide the compensation of senior executives. According to its annual report, those include financial metrics such as “attributable profit; underlying EBIT (earnings before interest and taxation); and total shareholder return (share price and dividends which are assumed to be reinvested).” What has emerged more recently is the use of nonfinancial, but still objective, KPIs. In BHP’s case, these are total recorded injury frequency and greenhouse gas emissions. Corporations are now taking a further step beyond objective metrics, which can be financial and nonfinancial, to include subjective measures — tagged as “soft.” In 2012 the Commonwealth Bank restructured its evaluation system so that 75% of CEO incentives came from the bank’s total shareholder return (TSR), relative to a set peer group, and 25% from customer-satisfaction results, benchmarked against another peer group. When this award structure reached the end of its four-year performance period, on June 30, 2016, in response to the ethical scandals within the bank’s life insurance arm, the bank’s board took yet another step to include even more subjective measures. Specifically, to help modify the bank’s culture to match its stated values, the Remuneration Committee and Board recommended a change to the reward split: TSR 50%, customer satisfaction 25%, and people and community 25%. The latter was concerned with “measuring long-term progress in the areas of diversity and inclusion, sustainability, and culture.” Now a full 50% of the assessment was subjective. This proved to be a step too far for some shareholders, precipitating their revolt in November 2016. Boards around the world find themselves in a bind. For the last 20 years they’ve gone down a path forged largely by U.S. corporations and global remuneration consultants. They now find themselves dissatisfied with the result, recognizing that they can’t simply rely on financial measures in assessing corporate performance and in distributing rewards to CEOs and senior executives. But they don’t really know what to do instead. As a consequence, companies are firing off ad hoc responses rather than approaching performance measurement in a comprehensive way. The Commonwealth Bank appeared to shareholders as simply putting out a fire. “Well-intentioned but not well designed” was how Ian Silk, the CEO of Australia’s biggest industry superannuation fund, AustralianSuper, assessed the bank’s attempt. The future of corporate reporting lies in an integrated approach. Here’s the framework I employ with boards and CEOs. I recommend using it in developing a corporate performance scorecard. It produces both objective and subjective measures: Recognize, as company law dictates, that a board’s primary responsibility is to look after the best interests of the company — not only those of shareholders. Develop a corporate scorecard focused on the relationships that the company has with its stakeholders, including customers, employees, shareholders, and suppliers. Acknowledge that the relationship between company and stakeholder is a two-way street. Develop measures on both sides recognizing that measuring performance is measuring relationships and that shareholder returns are driven by effective relationships with other stakeholders. Appreciate that those much-sought-after leading indicators are often those soft, subjective measures. Implement a short list of KPIs recognizing the cause-and-effect relationship between soft and hard measures. A recent study by AMP Capital observed that “incentives linked solely to financial metrics risk fuelling negative culture and conduct.” As a result, it noted: “Companies are increasingly focussing on setting non-financial targets alongside financial targets.” The Commonwealth Bank is one among many firms around the globe that is forging new ground. You might expect that the board, under its new chair’s leadership and following the kerfuffle, would back away from the issue. It has no intention of doing so. Instead, indications are that it will provide shareholders with additional context and logic on the thorny issue of soft measures as part of CEO assessment. That points to an additional step that firms can take: proactively preparing their shareholders to accept a different way of doing business.
Just days after troubled retailer Sears Holdings was put on (yet another) deathwatch after its stock crashed to all time lows while it CDS hit a record high, earlier this week, the short squeeze is back, with the stock surging 20% pre market, after the company announced it is planning steps to improve liquidity and financial flexibility, launching a strategic restructuring program intended to streamline operations and improve its dreadful operating performance, targeting cost cuts of at least $1 billion while repaying over a billion in outstanding pension obligations. The announcement comes as Sears announced another brutal quarter, in which revenue crashed 16% to $6.1 billion and net losses rose to $635 million from $580 million in the period last year according to preliminary results. For the full year, Sears expects revenues to fall 12% from last year to $22.1 billion. The company, controlled by its billionaire chief executive, Edward Lampert who over a decade ago took Kmart out of bankruptcy, announced his new plan to cut costs by at least $1 billion in 2017 by reducing overhead, improving merchandise at its stores and through better inventory management. Company CEO and Chairman said "to build on our positive momentum, today we are initiating a fundamental restructuring of our operations that targets at least $1.0 billion in cost savings on annualized basis, as well as improves our operating performance. To capture these savings, we plan to reduce our corporate overhead, more closely integrate our Sears and Kmart operations and improve our merchandising, supply chain and inventory management. While it reported a 10.3% plunge in comp sales, of which domestics same store sales tumbled 12.3%, and Kmart dropped 8%, Sears said it would cut debt and pension obligations by at least $1.5 billion this year. Sears also said it sold five Sears Full-line stores and two Sears Auto Centers for $72.5 million in January and engaged Eastdil Secured to raise at least $1 billion from the sale of its real estate. The company has also initiated the 150 store closures it previously announced, with the expectation that they will be completed during the first quarter. And the company has partnered with Eastdil Secured to sell at least $1 billion in real estate properties The retailer said that it would use the proceeds from last month's sales of its lawn and garden equipment brand, Craftsman, to Stanley Black & Decker, to reduce its debt and pension obligations by $1.5 billion for fiscal 2017. And so begins the latest in a series of many turnaround efforts, all of which have previously failed to spark a rebound in the melting ice cube. While it remains to be seen if this time will be different, for now the shorts, of which there are many, are scrambling to cover on what may be Sears' last hail mary.
A partnership between the Waringarri Aboriginal arts centre in Kununurra and Wesfarmers, Western Australia, has seen Aboriginal artists from the East Kimberly create a set of 15 aluminium sculptures which have been cast from designs carved on boab nuts. The Boab100 collection saw 15 emerging and senior artists chosen to produce one cast each from the boab nut that they had personally picked. The casts were sent to Brisbane and Shanghai workshops to be produced into white aluminium. Australian public institutions, such as the Art Gallery of Western Australia, the National Library in Canberra, Charles Darwin University in Darwin and the Parliament of Western Australia, have been gifted a set of all 15 designs. Source: ABC News
Австралия/США: Wesfarmers продаст одно из своих подразделений компании Arthur J. Gallagher & Co за $
Австралийский ритейлер Wesfarmers заключил соглашение о продаже одного из своих подразделений компании Arthur J. Gallagher & Co за A$1,01 млрд ($938,74 млн). Стоит отметить, что сделка, следующая за продажей страхового подразделения фирме Insurance Australia Group за A$1,85 млрд, подлежит одобрению регулятивных органов.