The 19th Annual Remuneration & Governance Forum, co-hosted by CGI Glass Lewis and Guerdon Associates, convened on the 18th of March 2025 in Sydney. The forum provided a platform for candid, experience-driven dialogue between directors, institutional investors and governance professionals, focusing on both the 2024 proxy season and the broader landscape.
Below we present a summary of some of this year’s sessions on remuneration. You can read about the governance-related forum discussions here, and about key insights from the 2024 proxy season in Australia here.
These notes reflect the discussions held at the Forum and should not be interpreted as representing CGI Glass Lewis’ views or policies.
Incentives or Skin in the Game?
The first panel opened with a central question: What motivates executives to deliver long-term value? Carefully structured incentives, or meaningful equity ownership? While traditional incentive plans reward specific performance outcomes, “skin in the game” refers to equity holdings regardless of performance. Panellists challenged the notion that the two are mutually exclusive.
Framed by insights from behavioural economics and international practices, the panel explored what drives executive performance, builds trust and creates sustainable value for shareholders.
Culture and Performance: The Real Bedrock of Incentive Design
One strong theme was that no pay structure operates in a vacuum. Culture, not just incentive mechanics, ultimately drives executive behaviour. A values-driven, high-performance culture enables incentive frameworks to work as intended, fostering entrepreneurship, accountability and strategic focus. In this context, long-term incentives (LTIs) can function as a proxy for ownership, particularly when executives feel emotionally and reputationally tied to business outcomes.
Panellists emphasised that incentive plans should be simple, well-communicated and achievable, but not easily met. Targets must be clearly linked to value creation, with performance hurdles that stretch executives without becoming unrealistic. The objective is to energise, not frustrate. Overly complex frameworks risk being viewed as arbitrary or gamed. One panellist suggested a good test is whether the average employee, or even the CEO, can explain how the incentive works in plain language.
Balancing Restricted Equity and Performance Conditions
The panel explored whether equity grants without performance hurdles (e.g. restricted stock units) could replace traditional incentives. Some supported them as alignment tools, while others argued they risk undermining performance focus.
The consensus was that a blended approach that combined performance hurdles, meaningful equity exposure and clear vesting structures can offer the strongest alignment.
Global Norms vs. Local Expectations
The panel examined the tension between global remuneration practices and local investor standards, highlighting the challenge of attracting top talent while meeting domestic shareholder expectations. In the U.S., large sign-on awards and restricted stock grants without performance hurdles are common.
By contrast, Australian institutional investors tend to prefer structured arrangements with strong performance orientation. While total shareholder return (TSR) remains popular for its simplicity and comparability, panellists noted that it can be overly sensitive to market sentiment and macroeconomic shocks. Earnings per share (EPS) and return on invested capital (ROiC) were seen as more reflective of operational performance, particularly in capital-intensive sectors. No single metric is perfect. Boards should select a blend aligned with business strategy.
Although sign-on or buyout awards may be necessary to attract global talent, panellists agreed that such awards should retain performance orientation. Even for recruitment, equity grants should include retention features and, where feasible, performance conditions.
Flexibility and the Role of Discretion
Panellists acknowledged that no plan can anticipate every market cycle or macroeconomic shock. In such cases, the ability of the board to exercise discretion, either to reduce payouts or reward strong effort in a down cycle, becomes critical. However, discretion must be underpinned by clear principles and consistent application. Over time, this builds trust between boards, executives and shareholders. Nevertheless, overuse of discretion, or opaque rationale, risks eroding trust.
Recognition, Vesting Horizons and Executive Retention
Finally, the discussion explored the psychological drivers of retention. While quantum often dominates headlines, the discussion highlighted the enduring impact of recognition and meaningful reward structures. In high-performance cultures, even modest awards can meaningfully enhance morale and retention when delivered thoughtfully. Long-term vesting remains an important tool to reinforce commitment, but only if it’s calibrated to executive tenure. For newer executives or those with shorter expected tenures, long-dated vesting can dilute impact.
Panellists endorsed rolling annual grants with cumulative vesting, where new equity grants are issued each year with their own vesting schedules. This creates overlapping grants at different stages, reinforcing ongoing alignment and avoiding the cliff-edge effect of a single, distant grant. Crucially, it ensures executives always have value at stake and must continue delivering performance to realise it.
From Incentives to Impact: Sharpening Long-Term Alignment
While philosophies varied, panellists aligned on one point: executive pay must ultimately serve long-term value creation. The discussion brought to light several practical considerations for boards seeking to refine their approach:
- Incentives must be rooted in culture:
Incentive plans work best in organisations with high-performance cultures, clear values and executive teams that feel emotionally and reputationally tied to outcomes.
- Simplicity drives clarity and motivation:
Incentivesshould be easy to explain, realistic to achieve and ambitious enough to stretch,avoiding complexity that clouds purpose.
- Balance performance and ownership:
While time-vested equity supports alignment, it should not fully replace performance-linked LTIs. Consider blended models that include performance hurdles and build meaningful equity interest.
- Design for the executive lifecycle:
Rolling annual grants, cumulative vesting and flexible structures can help engage executives across varying tenures and leadership transitions.
- Use discretion with transparency:
Boards must retain discretion to respond to changing conditions but should apply it consistently and communicate rationale clearly to maintain the trust of shareholders and executives.
- Align with investor expectations:
Global competitiveness must be balanced with local standards. Australian investors expect performance-linked remuneration. Metrics like EPS, ROiC, and TSR should reflect value creation, not just external sentiment.
- Recognise non-financial retention factors:
Executives stay not just for pay, but for purpose, recognition and personal growth. Leadership development, internal mobility and culture all play a role.
CGI Glass Lewis and Guerdon Associates’ Remuneration & Governance Forum is held annually in Q1. These notes reflect the discussions held at the Forum and should not be interpreted as representing CGI Glass Lewis’ views or policies.
