Yesterday, the Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Bill 2011 (Cwth) passed the Senate without amendments.
Amendments proposed by the Coalition seeking to amend the threshold for the “two-strikes” test and amendments proposed by the Greens to cap executive salaries were both voted down.
The Bill is now awaiting Royal Assent and companies need to take note of the potential implications for the upcoming AGM season.
The key reforms introduced by this Bill and the implications for companies are outlined in our earlier alert.
The Bill introduces the following reforms effective from 1 July 2011:
- a “two-strikes” test for directors in respect of a “no” vote regarding a company’s remuneration report (where both of the company’s two most recent AGMs are held on or after 1 July 2011);
- a new regime concerning the use of remuneration consultants;
- a prohibition on the hedging of incentive remuneration;
- a requirement that shareholder approval be obtained for declarations of “no vacancy”; and
- simplified remuneration report disclosure requirements for financial years starting on or after 1 July 2011.
The following reforms are effective from 1 August 2011 and will not apply to AGMs held in July 2011:
- a prohibition on key management personnel and their closely related parties from voting their shares, or exercising undirected proxies, on certain resolutions that concern their remuneration; and
- provisions designed to prevent the “cherry picking” of proxies.
Impact of reforms
These reforms have significant implications for the management of executive remuneration by companies.
We have written extensively on the limitations of some of these reforms since they were first suggested by the Productivity Commission:
- Executive Remuneration Bill - March 2011
- Executive Remuneration Reforms - February 2011
- Executive Remuneration Reforms - December 2010
- Executive Remuneration - Government responds to PC report - April 2010
- Productivity Commission Report on Executive Remuneration - February 2010
The “two-strikes” test is particularly problematic as it disregards the view of the majority of shareholders. It places too high an emphasis on remuneration matters and means that a board spill can be triggered irrespective of financial performance and good corporate governance