Director and Executive Remuneration Measures to improving Accountability

Tuesday 21 June 2011 @ 3.19 p.m. | Corporate & Regulatory

The Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Bill 2011 passed the Senate on 26 June 2011. The Bill has a range of measures intended to implements many of the recommendations made by the Productivity Commission (PC) in its recent inquiry into executive remuneration in Australia.

Key measures in the Bill include:

  • strengthening the non-binding vote on the remuneration report, by requiring a vote for directors to stand for re-election if they do not adequately address shareholder concerns on remuneration issues over two consecutive years;

  • increasing transparency and accountability with respect to the use of remuneration consultants;

  • addressing conflicts of interests that exist with directors and executives voting their shares on remuneration resolutions;

  • ensuring that remuneration remains linked to performance by prohibiting hedging of incentive remuneration;

  • requiring shareholder approval for declarations of ‘no vacancy’ at an annual general meeting (AGM);

  • prohibiting proxy holders from ‘cherry picking’ the proxies they exercise, by requiring that any directed proxies that are not voted default to the Chair, who is required to vote the proxies as directed; and

  • reducing the complexity of the remuneration report by confining disclosures in the report to the key management personnel (KMP).

As the Sydney Morning Herald indicates:

“Directors have been put on notice over executive pay, with boards now facing a potential spill if they ignore shareholder opposition to remuneration packages.

Under the landmark ‘two-strikes’ rule, passed by the Senate last night (20 June 2011), shareholders will be able to demand a vote on whether to spill the board if more than a quarter of votes oppose the remuneration report at two successive annual general meetings.”

What do you think of the changes – are they for the better or worse?

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