(discussion paper written by Greg Brogan)

STI Deferral - APRA & Disclosed Market Practices

Extract:

Disclosed Market Practices

Executive Pay Systems has undertaken a research project to independently assess whether a cross-section of organisations have a disclosed history of deferring STI to subsequent years. The study sought to discover:

• Whether the subject company deferred STI
• Which employees were subject to deferral
• The proportion deferred
• The period of deferral
• The method of deferral (restricted shares, cash withheld, etc)
• Whether entitlement to the deferred portion is subject to additional performance assessment or re-testing, and
• Whether the basis of deferral or re-testing related to risk assessment or risk appetite.

The companies examined included the ‘four pillars’ and other banks, the major insurance companies, publicly listed investment banks, telecommunications providers, large retailers and manufacturers. It should be noted that all of the data is ‘pre-APRA’ as it relates to the 2008 financial year. Our findings are summarised below.

64% of the companies examined defer some portion of annual STI until later years while 73% of the Banking and Finance companies do so. All of the subject companies which defer STI apply the practice to the CEO and direct reports while more than half apply it further down the line.

There does not appear to be a standard proportion deferred although the majority vary between 25% and 50%. That proportion is deferred in most cases for 1 year but in two thirds of the companies the period of deferral extends to 2 years or more. The period of deferral is in most cases the same between the CEO and the direct reports. In companies that differ between the two, the main difference is the portion of STI that is deferred as opposed to the period of deferral.....