Following recommendations made by the Corporations and Markets Advisory Committee, the Government has announced that it will amend the Corporations Act 2001 (Cth) in order to improve disclosure in executive remuneration reports.
Under the reforms, listed companies would be required to disclose the steps they have taken to claw back remuneration, where a material misstatement has occurred in relation to the company's financial statements.
Where a claw back has not occurred, the board would be required to provide a detailed explanation to their shareholders, who may exercise their powers under the two-strikes rule which came into effect in mid 2011 to vote against the report.
Remuneration reports would also need to disclose:
- a general description of the company's remuneration governance framework;
- all payments for key management personnel upon their retirement from the company;
- remuneration by categories – ie crystallised past pay, present pay and future pay; and
- any options that have lapsed in the current financial year.
Other proposed reforms include:
▪ relieving certain unlisted entities from the obligation to prepare a remuneration report; and
▪ inserting disclosure requirements relating to related party transactions into the Corporations Regulations 2001 (Cth).
Draft legislation for these reforms will be released in late 2012.
See the Government media release.
The amending laws should be closely examined when they are released to determine their impact on companies' disclosure obligations. In particular, the expected additional obligations in relation to the claw back of remuneration could have a substantial effect on the attention paid to financial statements, if remuneration could be at risk.