Proxy Adviser ISS Recommends Shareholders Reject ASX Executive Pay Report

Influential proxy adviser Institutional Shareholder Services (ISS) is urging shareholders of the Australian Securities Exchange (ASX) to vote against the company's remuneration report, arguing that executive bonuses are "misaligned" with its weak performance and declining shareholder returns. The recommendation comes ahead of the exchange operator's annual general meeting scheduled for October 22.

Bonus Misalignment Cited

In its report, ISS highlighted a significant disconnect between the company's short-term variable remuneration (STVR) and its financial results. The firm pointed to a 23.6% decline in the ASX's share price over the past year and total shareholder returns (TSR) that underperformed both peers and the broader index.

Despite these results, the ASX board did not use its discretion to lower the executive bonus pool, which remained at 100% of its target, according to ISS. The proxy adviser stated, "The STVR outcome is misaligned with the company’s statutory results and shareholder experience as the key concern."

ISS also criticized the metrics used to calculate bonuses. It noted that the profit measure excluded A$51.5 million ($35.73 million) in significant costs, including regulatory fines and expenses from its clearing system replacement project. Furthermore, it argued that half of the bonuses were based on non-financial measures that were akin to executives' "day jobs."

'Two Strikes' Rule in Focus

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The recommendation puts the ASX at risk of receiving a "first strike" against its pay report under Australian corporate law. If more than 25% of shareholders vote against the report for two consecutive years, it can trigger a subsequent vote to remove the entire board of directors.

The ASX has faced shareholder discontent over pay previously, receiving a first strike in 2024. It avoided a second strike and a potential board spill last year after shareholders endorsed its pay plans. The upcoming meeting will be the first under new CEO Anthony Attia, who took the helm in May after Helen Lofthouse stepped down.

Conflicting Advice from Proxy Firms

While ISS has recommended a vote against the report, another major proxy advisory firm, CGI Glass Lewis, has advised shareholders to endorse the pay plans. According to Reuters, Glass Lewis acknowledged the weak shareholder returns but noted the company's operational progress, including the delivery of the first phase of its new Clearing House Electronic Subregister System (CHESS).

The ASX did not immediately respond to a request for comment on the ISS report. The diverging recommendations present a key decision for investors as the company navigates a period of leadership transition and intense scrutiny over its governance and infrastructure projects.