Hot topics

Say-on-pay

Do shareholders have an advisory or other vote regarding executive remuneration? How frequently may they vote?

Listed companies are required to publish a remuneration report annually. The report is contained within the directors’ report section of the company’s annual report and is provided to shareholders and is available to the public on the ASX website.

As outlined further in question 28 above, shareholders have an advisory, non-binding vote at the company’s AGM to approve the remuneration report. If a company receives ‘two strikes’ on its executive remuneration, shareholders are given the option to ‘spill’ the board.

Shareholder-nominated directors

Do shareholders have the ability to nominate directors and have them included in shareholder meeting materials that are prepared and distributed at the company’s expense?

Companies may enter into agreements that give major shareholders, parent companies or other stakeholders the opportunity to nominate a director to be appointed to the board. Nominee directors are appointed to represent the interest of their appointee but must ensure they avoid conflicts of interest and abide by their directors’ duties to the company. Private companies may provide the terms and conditions of nominee directors in the company’s constitution or a shareholder agreement at their discretion. In contrast, listed entities have less freedom as nominee directors are subject to election and re-election requirements.

Shareholder engagement

Do companies engage with shareholders? If so, who typically participates in the company’s engagement efforts and when does engagement typically occur?

The extent to which companies engage with shareholders varies greatly from company to company. Shareholders have the ability to question directors and management of companies at AGMs, but it is common for companies to engage with shareholders (particularly key institutional shareholders) on a regular basis.

Key shareholder representatives such as ACSI engage with listed companies on a regular basis regarding matters that they consider may affect the interest of their members.

Sustainability disclosure

Are companies required to provide disclosure with respect to corporate social responsibility matters?

There are a number of disclosure obligations placed on Australian companies with respect to the disclosure of corporate social responsibility matters (including environmental risks facing companies). These include the following:

  • ASX’s Guidance Note 9 (concerning the disclosure of corporate governance practices) recommends that a ‘listed entity should disclose whether it has any material exposure to economic, environmental and social sustainability risks and, if it does, how it manages or intends to manage these risks’. If the company does not disclose these details in its annual corporate governance statement, it must explain why not;
  • when undertaking a fundraising under a prospectus, companies are required to disclose ‘all the information that investors and their professional advisers would reasonably require to make an informed assessment’ of, among other things, the financial position of the company, which may include social responsibility matters where these pose financial risks to the company; and
  • in the ‘financial report and directors report’ required to be lodged with ASIC each financial year under section 292 of the Corporations Act, the company is required to report on the company’s performance in respect of any particular and significant environmental regulations to which the company is subject.

Such disclosure obligations are likely to increase in the future. This is because:

  • global task forces have been established (and have reported in relation to) the standard of corporate disclosure of social responsibility matters (particularly climate risks) and how this standard can be improved;
  • institutional investor representatives, such as ACSI, have established a dialogue with listed companies in relation to social responsibility disclosures and have issued various reports in relation to these matters; and
  • increasingly, significant listed companies are providing additional disclosure over and above the specific obligations regarding these matters as they recognise that this is an area that shareholders are becoming increasingly interested in.

CEO pay ratio disclosure

Are companies required to disclose the ‘pay ratio’ between the CEO’s annual total compensation and the annual total compensation of other workers?

Unlike the United States and other international jurisdictions, Australia does not require companies to disclose the ratio of CEO to general workforce remuneration. While there are some calls for similar legislation to be imposed in Australia, there is limited regulatory or corporate appetite for reform in this area. The Governance Council Recommendations suggest that executive remuneration should be issued fairly, responsibly and not excessively; however, they stop short of requiring CEO-employee comparisons.

Remuneration reports (see question 28) and remuneration committees (see question 25) establish checks on executive pay under the current Australian governance standards.

Gender pay gap disclosure

Are companies required to disclose ‘gender pay gap’ information? If so, how is the gender pay gap measured?

While Australia underwent a consultation process in relation to the implementation of mandatory gender pay gap reporting obligations in 2016, legislation was never implemented. Australian companies are not required to disclosure ‘gender pay gap’ information; however, the Governance Council Recommendations suggest listed entities undertake gender pay equity audits as part of their governance procedures.