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Examining the Impact of COVID-19 on TSR Metrics for Australian Firms

Relative total shareholder returns (RTSR) remains the most prevalent performance measure for long-term incentive (LTI) plans amongst Australia’s ASX300 companies. To determine the vesting of LTI awards, the total shareholder returns (TSR) of a specific company, comprising share price appreciation and dividends, is compared to the TSR delivered by companies in a specific market index or bespoke group of comparator companies. Proponents say that RTSR aligns an executive’s rewards to their company’s success in delivering excess value to shareholders. But critics claim it’s a flawed metric that is more of a lottery than an incentive.

Aon has analysed TSR performance of ASX100 companies before and after the COVID-19-related shutdown. Findings reveal that the impact on share price has varied widely dependent upon industry. Some industries, like consumer staples and healthcare, saw increased activity, while others, such as oil, gas and real estate, have struggled. This is particularly true for those in the discretionary spend sector including airlines, travel and hospitality.

Using this analysis, we examine LTI awards features and RTSR calculation methodologies that may have provided some protection from the full effects of the COVID-19 pandemic on a company’s share price, volatility and RTSR ranking. We share specific examples to illustrate how some of these features could affect the vesting of these LTI awards at the end of the fiscal year of 2020.

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