R.News July 2009

Welcome to the July edition of R.News. We are already halfway through the year and what a year it has been so far. We all expected that 2009 would be a year of challenge and whilst most of us were anticipating the salary and headcount freezes as a response to the global downturn, few of us could have been prepared for the sheer volume of legislative, social and other changes that have impacted the remuneration decisions and priorities in our own organisations and across the board.

In this edition of R.News we explore: the hot topic of the impact of recent legislative changes on company share and equity programs; provide an update on the draft changes proposed for executive remuneration; publish a case study on Canon Australia's experience in implementing R.Review, our web-based salary review software solution; examine the paid parental leave debate; outline the benefits of implementing an effective short-term incentive plan; and update you with some recent and upcoming Remesys events and news relating to the 2009 Telstra Business Awards, the IQPC Strategic Remuneration & Reward 2009 Conference, and R.Network launches in both Sydney and Melbourne.

Latest news

We are very pleased to announce that Remesys is a 2009 NSW Telstra Business Awards Finalist (AMP Innovation Award). Remesys was nominated for this award for developing the market-leading, web-based remuneration review software R.Review.

Clients that are currently using R.Review to manage their salary and bonus review process include AGL, Aon, Bupa, Canon, Ericsson, Leighton Contractors, Oz Minerals, Pacific Brands, Pitcher Partners, QBE and United Group Resources.

Remesys: Exhibition Sponsor at IQPC Strategic Remuneration & Reward 2009 Conference

The IQPC Strategic Remuneration & Reward 2009 conference was held in Sydney on April 29 & 30 2009. This was the inaugural event, with IQPC intending to run the event annually moving forward.

As an exhibition sponsor, Remesys featured prominently throughout the two day event which targeted specialist remuneration practitioners, particularly senior managers. The conference provided attendees with an opportunity to network with influential remuneration decision-makers from some of Australia's largest organisations.

A number of Remesys' clients participated in the official program with Rachel Wolfe from Oz Minerals sitting on a number of panel discussions including a discussion about utlilising technology in remuneration processes. We were very pleased to hear Rachel mention the positive impact that R.Review had in transforming the salary review process at Oz Minerals. Dr Wendy Attwater from Perpetual presented on developing flexible reward strategies during turbulent times and Colin Pritchard, from Ericsson, gave an energetic presentation on the topic of implementing a value proposition to a segmented workforce.

Remesys was represented by Natalie Feller, Melinda Jarvey and Rebekah Alexander, and we look forward to building relationships with the attendees we met at the conference.

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Employee Share Plans

When your employees are also your shareholders there is an increased alignment of individual goals with the company's goals and objectives. Companies recognise that many benefits can be realised in providing programs that offer employees the ability to become shareholders in the company.

In addition to providing their employees with the option to salary sacrifice their salary or bonus payments into company share programs, listed organisations typically offer the following plans:

Options/performance rights

These plans have been used by companies to facilitate the attraction and retention of executives and other key employees who are expected to have a significant impact on the growth of shareholder value in the company over the long term. In addition, these plans ensure that targeted employees share in the benefits when the company performs well.

Offering this type of plan has the following benefits:

• ensures a continued focus on share price growth;
• assists the company in retaining and motivating employees even in tough market conditions;
• aligns employee goals with that of shareholders; and
• focuses employees on the medium to long term performance of the company.

$1,000 tax exempt allocation of shares for all employees

This plan provides an opportunity for all employees to own a stake in the company and share in the company's success. This plan type can provide a significant benefit to lower paid employees by allowing up to $1,000 of shares to be awarded tax-free each year. Companies can choose to link this to a performance hurdle to ensure that the employee focuses on the company targets.

This plan has the following benefits:

• tax free benefit of up to $1,000 for employees;
• motivates employees to perform; and
• can act as a golden handcuff.

Both these plan types have provided a tax advantage to the employee who is able to defer paying tax until a monetary value to the award is realised (i.e. when they sell their shares).

So what has changed and how will this impact companies with employee share plans?

During the last budget announcement, the government proposed taxing employee share schemes when employees are granted discounts or options on shares, rather than when they vest. As such, employees would no longer be able to defer their taxation on any shares or options that they acquired. Rather, tax will be payable at the time of grant, before any value from the plan has been realised.

In addition, the government advised that they would limit access to the $1,000 tax exemption to those employees with a taxable income of less than $60,000 after adjustment for fringe benefits, salary sacrifice and negative gearing losses.

Since unveiling the original plan, there has been significant criticism of the changes and consequently Treasurer Wayne Swan suggested that perhaps the government acted too rashly in its decision to crack down on employee share schemes. On Friday 5 June 2009, the Federal Government released its options paper and draft legislation for the proposed amendments to the taxation of employee share schemes announced in the federal budget, for public consultation. Proposed amendments outlined in a consultation paper include raising the income threshold for a $1,000 tax exemption on upfront tax to $150,000 from the originally proposed $60,000, and allowing tax obligations on shares and options to be deferred where there is a risk of forfeiture.

As a transitional concession, the proposed amendments were not effective until 1 July 2009. This means that any offer of shares or option programs made around the time of the budget which were completed prior to the end of the financial year were not captured by the new rules.

Many companies have chosen to suspend or review their share schemes including Alcoa, Fairfax Media, Macquarie Group, Wesfarmers, Woodside and Woolworths.

Depending on the outcome of the paper, Australian companies may find themselves in a situation where they are forced to replace share-based incentive plans that result in employees having greater ownership of and connection to the company with deferred cash payments or quasi share plans.

Businesses will be hoping that the government reconsiders the impact of such a situation and recognises that share plans should be encouraged not discouraged, as they ensure that senior executives focus on long term growth, and that there is a far greater alignment between employee, shareholder and company goals.

1st July Update

On 1 July 2009 the Assistant Treasurer released a policy statement setting out the final taxation treatment of shares and rights acquired under employee share schemes. The final policy provides further certainty to allow companies to continue to provide share schemes into the future.

"As part of that consultation process, the government has taken on board the concerns raised and examined the most efficient way of protecting the tax base and cutting down on potential avoidance and confusion at the higher end while maintaining the current support for employee share ownership schemes, particularly for low and middle income workers."

Some of the key changes include:

• increasing the income tax threshold for eligibility of the $1,000 tax exemption from $150,000 to $180,000, to align it with the top marginal tax rate threshold;


• tax deferral will be available for schemes which include a "real risk of forfeiture". This deferral may be extended until disposal restrictions under the scheme cease;


• tax deferral will be available for up to $5,000 worth of shares under particular salary sacrifice based employee share schemes, even if there is no real risk of forfeiture; and


• removing the reporting requirement for employers to report the market value of employee share scheme benefits in the year of grant, if this is not the year in which the employee is taxed.

A copy of the Press Release is available here.

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Canon Australia

Canon Australia implements R.Review to streamline the annual salary review process and joins a number of other high profile organisations that have chosen R.Review, Remesys' innovative online remuneration review software.

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R.Network: The Remuneration & Benefits Networking Group Sydney Launch

R.Network, the remuneration and benefits networking group facilitated by Remesys was officially launched in Sydney on June 18 2009 with a lunch time event. The event format began with informal networking, followed by an official welcome by Remesys.

The focal point of the launch session was a series of presentations from prominent remuneration and HR leaders who provided insight into how the current economic climate has impacted, and is still impacting, remuneration decisions in their organisations. The lineup featured Joe Marmilic, General Manager - Human Resources, Aon Australia/Pacific; Priscilla Mather, Group General Manager - Reward, Policy & Performance, Tabcorp and Carrie Luzar, Group Remuneration & Global Mobility Manager, Sinclair Knight Merz.

Questions posed to the guest speakers led into round table discussion on how each organisation approached the specific issues mentioned, which further led to information sharing on a wider range of topics. Remesys was extremely pleased with the number of remuneration and benefits specialists who attended the launch session and the quality of information and the open manner in which it was shared.

The Sydney launch confirmed the value of bringing together remuneration and benefits professionals from a range of industries and highlighted that the challenges faced in one organisation aren't dissimilar to the challenges faced by other organisations in different industries.

Some of the feedback Remesys received following the session included:

"Fantastic to meet other remuneration and benefit specialists and hear that our current priorities are not that dissimilar to others"
Kate Drew, HR Advisor, NICTA

"Speakers brought some really interesting real live issues to the discussion, made it interesting"
Tina Tan, Remuneration and Benefits Assoc. Consultant, Hudson Global Resources & HR Consulting

"Very well facilitated, good guest speakers"
Toni Florio, Remuneration & Policies Consultant, Aon

Given the positive feedback received, we are intending to hold our next R.Network event in Melbourne on September 3 2009. Guest speakers will include Rachel Wolfe, Group HR Manager Remuneration & HR Support, Oz Minerals, Colin Pritchard, Manager - Performance and Reward, Ericsson Australia and Elizabeth Nunez, Director - Human Resources, Pitcher Partners Advisors Proprietary Limited. We will also continue to hold R.Network events in Sydney on a quarterly basis and we encourage members to shape future discussions by letting us know what you would like to see on the agenda.

If you are interested in finding out more about R.Network, or would like to register your interest in future R.Network events, please register your interest online.

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Executive Remuneration: Termination Payments

In our March 2009 newsletter we included an article on executive remuneration, with specific focus on initiatives being undertaken by governments both here in Australia and in the United States. In February of this year, the US President announced plans to cap executive compensation within organisations receiving federal assistance. Prime Minister Kevin Rudd took a different approach, choosing to promote the development of a set of guidelines from the Australian Prudential Regulation Authority (APRA). Those guidelines have been drafted and are currently open to comments. We remain committed to providing further news and commentary when they are published in September 2009.

Executive pay is still a contentious topic and Remesys continues to examine the latest developments. We shift our focus this quarter to the Australian government's formalised crackdown on executive termination pay with draft legislation released on May 5 2009 in the form of the Corporations Amendment (improving accountability on Termination Payments) Bill 2009.

This Bill introduces a number of changes and widens the net considerably in terms of individuals for whom maximum termination payments are applicable, in an effort to close loopholes that businesses may have been able to utilise in the past.

One of the new measures prescribed is that termination payments for directors and some senior executives should be subject to shareholder approval should they equate to more than one year's base salary, or the average of three year's base salary for those with at least three year's service.

Putting aside the practicalities of convening shareholder meetings each time a termination is considered, the concept of basing termination payments on a mandated average three year salary that may not be reflective of the time actually spent in the executive position will undoubtedly provoke much discussion.

Further, under the draft Bill, employees reported in the remuneration section of company annual reports would also have their termination payments subjected to shareholder approval. We anticipate that this last point will require further clarification to assess the fairness of subjecting middle management to laws intended to regulate executive remuneration.

In releasing the Bill the government has also sought to clarify which benefits are considered to be termination benefits and therefore, included in the proposed termination cap. These include automatically vested or accelerated vesting options (although no mention of how a dollar value will be determined), superannuation contributions in excess of the superannuation guarantee and payments made in lieu of notice. Equally, there is clarification of what is excluded. The Bill stipulates conditions for repaying unauthorised benefits as well as the penalties applicable if the requirements are breached.

We would be keen to hear your thoughts on the Corporations Amendment (improving accountability on Termination Payments) Bill, or how you envisage dealing with the new requirements within your roles. Please join the conversation at http://twitter.com/Remesys.

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Paid Parental Leave: the Debate Continues

The question of who should fund parental leave has long been debated in Australia. An announcement made by the Federal Treasurer Wayne Swan in May 2009 confirmed that in January 2011 Australia will join the overwhelming majority of developed countries in implementing a national paid parental leave scheme.

The scheme essentially provides the primary care giver earning less than $150,000 per annum the minimum wage (currently just under $544 per week) for 18 weeks – a total payment of $9,792 before tax. In addition to those earning above the $150,000 threshold, many other women, including unemployed and full-time mothers, will not have access to the plan. Those who do receive the payment will not have access to the baby bonus (currently set at $5,000 untaxed) or the family tax benefit part B while they are on parental leave.

The proposed scheme is to be commended as Australia has lagged with respect to the social responsibility associated with legislated paid parental leave. In particular, it addresses the legitimate need to provide for low-paid women, those with poor job security and those in workplaces with no existing paid parental leave programs, and it attempts to address the notion that it should always be the woman who takes time out from paid work to raise children, with the 18 week payment being available to both women and men.

Whilst the proposed scheme will be paid in addition to any existing parental leave already offered by employers, the scheme does not provide a mandate that companies who already offer paid parental leave need to maintain their established parental leave provisions. With the scheme not commencing until January 2001, organisations have time to decide how they will adjust their practices in this important area, should they choose to do so at all.

Remesys is keen to hear your thoughts and any action your organisation might be taking in response to the announcement of a government funded parental leave scheme. Do you feel that the proposed scheme is adequate? Do you feel that providing government funding at a level consistent with the minimum wage will lift the burden on the financial cost of parental leave within your organisation? Are you or your organisation considering making changes to your current parental leave policies in light of the pending change?.

Please visit our Twitter page at http://twitter.com/Remesys to leave your thoughts and become involved in the discussion.

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How to Develop an Effective Short-Term Incentive Plan

In today's challenging economic environment many organisations are limited in their ability to increase their fixed remuneration for their employees and as such, the use of variable remuneration as a means of motivating and rewarding employees has become an important and effective way to keep employees focused on achieving business goals and objectives.

The key benefits of implementing effective incentive plans include:

• Encourages employees to behave in a particular way so that they can receive the reward;
• Establishes a clear relationship between pay and performance, therefore re-enforcing a pay for performance culture;
• Allows an organisation to attract and retain high performers (through improved pay competitiveness);and
• Improves employees' commitment to the organisation by enabling them to share in the organisation's success.

Incentive plans should be reviewed regularly to ensure that they are still relevant to the current environment and economic conditions. Following are some issues to consider when developing a plan for your company.

Remesys' 4 steps to developing and implementing an effective short-term pay program

1. Get to know your organisation

• Who should be consulted and for what purpose?
• How will the plan be funded?
• What is an acceptable cost for the plan?
• What are the potential obstacles (if any) to implementing the plan?
• Are employees governed by any industrial awards or agreements?
• Is your remuneration framework externally competitive and internally fair and equitable?
• How does the intended plan fit with the company's wider total reward framework – is it consistent?
• What need is the plan attempting to address?
• What is lacking in the current remuneration arrangement?
• Will the objective be better addressed through another type of rewards management program, e.g. increase to base rate or a recognition program?
• Are there any similar plans already operating in other parts of the business that you can learn from?

2. Design your plan

• Which of the different types of variable pay programs will best suit your organisations requirements?
- Company Bonus Plan
- Incentive Plans
- Commission Plans
- Spot Bonus
- Deferred Plans
- Value Based Plans
- Share Plans
- Option Plans

• Who will participate in the variable pay plan?
• What is your organisation's target pay position compared with the market?
• What is the appropriate pay mix, e.g. from total cash reward is 70% base salary, 30% possible variable payment appropriate for the position?
• How will the plan link to company, department, team and individual objectives and strategies?
• Will performance measures be linked i.e. do you have to achieve on one objective in order to be eligible for a second objective?
• Will you have multipliers (i.e. will the incentive earned for performance in one objective be modified through a 'kicker' based on performance in another)?
• Will the plan objectives have hurdles?
• How will the objectives be weighted and will they be capped?

3. Plan implementation

• Communicate, communicate, communicate!
• Have you considered 1:1 meetings, road-shows, team meetings?
• Is your employee communication easy to understand and simple to use?
• Do employees have access to payment models or calculators to easily see what their reward will be, based on their level of performance?

4. Annual plan review

All variable pay plans should be reviewed at a minimum annually. This is because:

• Targets within the plan should be consistent with the business/department targets which are reviewed and change annually; and
• Reward attached to the variable plan should be aligned to market rates. Market rates can change significantly over a 12 month period (for some roles this time span is much less).

If you require assistance in reviewing your current short-term incentive plans or designing a new incentive plan, Remesys have experienced consultants who can work with you to ensure your plan focuses employee efforts on those areas critical to your business success and assist in promoting a pay for performance culture.

Remesys Recruitment

We recognise that finding the best remuneration and reward specialists can be challenging and time consuming.

Our specialist knowledge and hands-on experience in remuneration and benefits and our established network of remuneration and reward professionals enables us to provide quality candidates with the appropriate skills to meet your specific requirements, irrespective of your company size or structure.

Through Remesys Recruitment, we are able to quickly and professionally react to your recruitment needs, from permanent vacancies in your remuneration team to placing remuneration contractors for specific fixed term projects or short term requirements.

We currently have a number of highly skilled and experienced remuneration specialists available in both Sydney and Melbourne.

Please don’t hesitate to contact Remesys next time you are recruiting for either permanent or contract remuneration and reward roles. For further information please contact Lara Kirschner on 0411 380 370 or at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

Fantastic opportunity to contribute and influence...

Our client is a worldwide leader in the insurance industry, bringing together its depth of resources, skills, products and services for insurance broking, reinsurance, risk management, financial planning, and employee compensation and benefits solutions. They are looking to recruit a Senior Remuneration and Policies Consultant to join their HR team at their Sydney Head Office. For additional information regarding this role please visit our website.

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Remesys Training

Remesys offer a range of practical remuneration and benefits training programs. The programs provide an environment for participants to learn and share ideas through practical examples, hands-on exercises and group discussion. Register your interest now as spaces are limited for the following courses:

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