PERX 2017
USE THIS INDEX WHEN:      
STARTING THE PERFORMANCE ASSESSMENT ON: 30 June 2017
AGAINST COMPANIES IN THE: ASX 100
UP TO AN END DATE OF: 30 June 2020
 
 
 
 
 
 
 
 
 
 
           
           
LATEST RESULTS     MPX Value
(50%)
SPX Value
(75%)
ASX 100 Accum.
Index value as at 30 June 2020     99.2 137.0 116.3
Total Return over 3 years -0.8% 37.0% 16.3%
Annualised Return -0.3% 11.1% 5.2%
           
INSIGHTS          
The MPX rose steadily for 14 months before losing all of these gains in the next 4 months to December 2018.  Performance then rebounded strongly and reached a high of 126.7 in December 2019.  The impact of the COVID-19 pandemic was sudden and dramatic driving returns deep into the red with the March 2020 figure falling to 86.9.  Since then returns have continued to be volatile but in a generally positive direction. At the end of the three years, the MPX for this group was almost back to its starting point at 99.2.
Therefore, LTI bonus plans that have this performance hurdle will be entitled to some vesting if the company's total return is positive over this 3 year period. 
Despite the widespread impact of the COVID-19 pandemic, the SPX has remained positive for the full 3 years.  In fact, our results show that the top 25 companies were able to generate a return of at least 11.1% pa for their shareholders over the period.  Hence, companies that use this threshold to determine full entitlement to LTI bonuses can use this result as an indicator of Strong performance.
The ASX 100 Accumulation index value also stayed above 100 for the full 3 years and is 16.3% up on its starting position.  This index has also remained above the MPX for most of the period and finished significantly higher.  Thus, over this period, a performance hurdle based on beating a 50% percentile target would be substantially easier than a requirement to beat the ASX 100 Accumulation index.
           
DATE     MPX Value
(50%)
SPX Value
(75%)
ASX 100 Accum.
31 December 2017 ##########   109.0 116.1 107.5
30 June 2018 ##########   107.7 128.5 112.1
31 December 2018 ##########   99.3 112.6 105.0
30 June 2019 ##########   118.4 138.3 126.2
31 December 2019 ##########   126.7 149.0 130.3
31 January 2020 ##########   125.3 149.5 136.9
29 February 2020 ##########   117.6 142.7 126.4
31 March 2020 ##########   86.9 112.7 100.3
30 April 2020 ##########   90.1 123.6 108.7
31 May 2020     100.1 134.6 112.9
30 June 2020 ##########   99.2 137.0 116.3
PERX 2018
USE THIS INDEX WHEN:      
STARTING THE PERFORMANCE ASSESSMENT ON: 30 June 2018
AGAINST COMPANIES IN THE: ASX 100
UP TO AN END DATE OF: 30 June 2020
HISTORICAL PERFORMANCE OF 2018 PERX SERIES
 
 
 
 
 
 
 
 
 
           
           
LATEST RESULTS     MPX Value
(50%)
SPX Value
(75%)
ASX 100 Accum.
Index value as at 30 June 2020     97.3 127.9 103.8
Total Return over 2 years     -2.7% 27.9% 3.8%
Annualised Return -1.4% 13.1% 1.9%
           
INSIGHTS          
The MPX fell 7.0% in the first 6 months before recovering at a steady rate throughout 2019 to reach a high of 116.7 in December 2019.  However, in the first quarter of 2020 the index fell 38 points to a low of 78.7. The index has since recovered half of these losses to finish at a value of 97.3 at 30 June 2020.
The 30 June 2020 result for the SPX of 127.9 equates to a minimum return of over 13.1% pa for the top 25 performing companies.  This result means that the difference between the return of the median company and the 75th percentile company is over 30% over the 2 years (127.9 compared to 97.3).
The SPX has rebounded more strongly in the past few months than the MPX with the current value only 12.7 points lower than the high of 140.6 in January 2020.
           
DATE     MPX Value
(50%)
SPX Value
(75%)
ASX 100 Accum.
31 December 2018 ##########   92.9 99.8 93.7
30 June 2019 ##########   107.5 127.3 112.6
31 December 2019 ##########   116.7 132.5 116.2
31 January 2020 ##########   116.6 140.6 122.1
29 February 2020 ##########   110.6 133.7 112.8
31 March 2020 ##########   78.7 104.3 89.5
30 April 2020 ##########   85.7 111.9 97.0
31 May 2020 ##########   95.7 122.8 100.8
30 June 2020 ##########   97.3 127.9 103.8
PERX 2019
USE THIS INDEX WHEN:      
STARTING THE PERFORMANCE ASSESSMENT ON: 30 June 2019
AGAINST COMPANIES IN THE: ASX 100
UP TO AN END DATE OF: 30 June 2020
HISTORICAL PERFORMANCE OF 2019 PERX SERIES
 
 
 
 
 
 
 
 
 
           
           
LATEST RESULTS     MPX Value
(50%)
SPX Value
(75%)
ASX 100 Accum.
Index value as at 30 June 2020     88.4 102.8 92.2
Total Return over 1 year     -11.6% 2.8% -7.8%
Annualised Return -11.6% 2.8% -7.8%
           
INSIGHTS          
The 30 June 2020 MPX value of 88.4 means that the median performing company in the ASX 100 has lost more than 11% in value in the last year.  However, this result is a strong recovery from the March 2020 low of 73.0.
The 30 June 2020 SPX value of 102.8 demonstrates that the top 25 companies have been able to recover and are now back into positive territory.
The ASX 100 Accumulation value of 92.2 is 3.8% above the MPX at 30 June 2020.  The experience with the 2017 and 2018 series suggests that the gap between median performance and 75th percentile performance is likely to increase over time.
           
DATE     MPX Value
(50%)
SPX Value
(75%)
ASX 100 Accum.
31 December 2019 ##########   104.8 115.2 103.2
31 January 2020 ##########   105.9 121.5 108.4
29 February 2020 ##########   99.3 115.2 100.1
31 March 2020 ##########   73.0 85.9 79.5
30 April 2020 ##########   79.2 90.9 86.1
31 May 2020     87.2 101.7 89.5
30 June 2020 ##########   88.4 102.8 92.2
YOUR PERX
CUSTOMISING PERX TO MEET YOUR SPECIFIC NEEDS
Our published PERX series has been designed to reflect the most common relative TSR hurdle design;  this being a comparator group that consists of the ASX 100 companies as at 30 June of each year.  
The PERX calculation engine can be used to develop customised PERX values that match the actual details of most relative LTI arrangements, these include different:
-        Comparator companies (including global shares)
-        Performance period start dates
-        Performance period end dates and
-        TSR calculation methods (eg. days used in VWAP calculations).
The company specific PERX results can be incorporated into customised reports for Remuneration Committees and to provide regular updates to company executives on their outstanding LTI grants.
Please call +61 (0)2 9225 6100 if you would like to enquire about this service or email us on: thuynh@pfsconsulting.com.au.
CALCULATION METHODOLOGY  
EXAMPLE OF PERX CALCULATION  
Assume there are four companies in an Index: A, B, C and D.  Over three years these companies produce the following returns:
Company After 1 Year After 2 Years After 3 Years
Cumulative
Return
Rank Cumulative
Return
Rank Cumulative
Return
Rank  
A 0% 3 15% 1 20% 1
B -5% 4 0% 4 14% 2
C 5% 2 10% 3 -5% 4
D 10% 1 12% 2 12% 3
SPX Return 5%
12%
14%  
SPX Value 1.05
1.12
1.14  
SPX takes the 75th percentile performance for the calculation period.  In this example, the 75th percentile performance is the second highest cumulative return. Hence:
After one year Company C's return of 5.0% is the second highest.  Therefore, strong performance is deemed as 5.0% or greater for the first year.
After two years, Company D's cumulative return of 12% is the second highest.  Therefore, a strong return over this period is when a company exceeds this result for the two years.
In the third year, Company B's strong performance in the final year moves it into second place with a cumulative three year return of 14%.  This cumulative return is the SPX cumulative return for the 3 year period.
Note that the progression of the SPX differs from the yearly returns of the four companies.  
Other key features of the PERX series are:
Based on Total Shareholder Return (TSR) – This is the market metric used by most companies to assess financial performance and incorporates changes in: share price, dividends paid and capital adjustments (such as share splits and placements).
Underlying Data - The calculations use Refinitiv's Datastream to provide data in relation to company actions, share prices and dividend data.
Volume Weighted Averages - To calculate the TSRs we use a Volume Weighted Average Price at the start and end of the calculation periods.  The period of volume weighting is 5 days.
Delisted and Suspended Companies - Companies that are delisted or suspended from trading at the time of calculation are removed from the calculations.  These companies are not replaced by other companies.  This is inline with how most of our clients treat these events.
Monthly Release - At this stage the PERX suite of indices will be released on a monthly basis with figures to be provided for 5 years for each series.
EXAMPLES
TRACKING THE RELATIVE PERFORMANCE OF AN LTI GRANT
XYZ Pty Ltd issued an LTI grant that has a relative TSR hurdle where vesting is subject to performance against the companies in the ASX 100.  The performance period started 30 June 2017 and will end four years later in 2021.  The company has calculated that it has achieved a return of 20% for the 3 years since commencement.  It would like to determine how it is tracking against this hurdle.
The chart shows how XYZ's total return after 1 year of -6% was well below the performance of the median company in the ASX 100.  
In the second half of year 2, XYZ's share price surged strongly and after 2 years the cumulative total return for the company was 24.3%.  This result was in between the median and 75th percentile performance of the comparator companies.
In the last year, XYZ's share price fell dramatically in March and April but then recovered strongly.  Its current total return of 20% puts it on track to achieve some vesting in 2021.
COMMUNICATING STRONG RELATIVE PERFORMANCE
LMN Limited has a similar bonus grant to XYZ but has a performance period of 3 years.  The company has undertaken the performance assessment and is planning on awarding eligible executives 100% of the applicable LTI grant.
The Remuneration Committee believes that some shareholder groups will react negatively to this news and are looking for a way to communicate the company's strong absolute and relative performance.
             

The chart shows how LMN's strong performance over the 3 years on an absolute and relative basis.
On an absolute basis the chart shows the company's strong result with a 66% return to shareholders over the 3 years.  It also shows how strongly the company's share price has recovered in the past 2 months with the total return almost returning to its 3 year high.
On a relative performance basis the chart shows how the company's financial performance has been equal to or above the SPX (top 25% of the ASX 100) for most of the 3 year period.  However, due to the strong rebound in the past 2 months the company's relative performance has also improved significantly and after 3 years is almost 30% higher than the SPX.  This result is therefore deserving of 100% vesting.