Shareholders get opportunity to remove directors over remuneration
The Australian government today introduced new legislation giving shareholders more power over executive pay.
The Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Bill 2011 was introduced by the Parliamentary Secretary to the Treasurer, the Hon David Bradbury MP.
The government said the move gives shareholders “unprecedented power over the pay of company directors and executives”. It was warmly welcomed by investor groups but the Australian Institute of Company Directors called it a “heavy-handed black letter law approach” which would create unnecessary red tape.
Key measures include strengthening the non-binding vote on remuneration, by giving shareholders the opportunity to remove directors if the company’s remuneration report has received a ‘no’ vote of 25% or more at two consecutive annual general meetings.
This is the so-called “two strikes” test and was one of the most contentious issues brought up in the consultation.
“Only those companies that continue to put up egregious pay propositions and blatantly ignore the views of a substantial group of shareholders should be concerned with these provisions,” said Ann Byrne, chief executive of the Australian Council of Superannuation Investors.
The Australian Shareholders Association said the “two strikes” approach would “enhance the responsiveness
of public companies to shareholders’ concerns about remuneration”.
Shareholder advisory firm ISS, while broadly supportive of the Bill at the consultation stage, did not support the proposed “two strikes” regime. Advisory firm Egan Associates said it would give “added sting” to the concentrated power of a select shareholder group.
The new bill also brings more transparency on the use of remuneration consultants – elements of which have been opposed by Mercer and ISS.
The Bill also prohibits directors, executives and their “closely related parties” from voting on executive pay. In addition it requires shareholder agreement for declarations of ‘no vacancy’ at AGMs. ACSI’s Byrne said the measures would enhance shareholder democracy and challenge the ‘directors club’.
The amendments follow recommendations made by the government’s Productivity Commission.
“It is now time for all stakeholders, including the management, director and shareholder lobbies together with companies to embrace these changes as they ultimately enhance the reputation of Australia’s corporate governance regime,” ACSI’s Byrne concluded.
The ASA said in its submission that the proposed Bill “should lead to improved transparency and accountability in executive remuneration matters, and we hope subsequent improvements in the alignment of remuneration and performance”. The amendmentscome into force on July 1.