PDF DOWNLOADThe Report specifically addresses requests that the then Minister for Financial Services, Superannuation and Corporate Law, the Honourable Chris Bowen MP put to CAMAC for its consideration. These were for CAMAC to:
- consider potential ways in which the existing legislative framework regarding executive remuneration under the Corporations Act 2001 (Cth) (Act) and the Corporations Regulation 2M.3.03 can be revised to “reduce its complexity and more effectively meet the needs of shareholders and companies”; and
- make recommendations on how to best revise the legislative architecture to reduce the complexity of remuneration reports.
While CAMAC does recommend that some specific changes are made to the existing executive remuneration framework, the Report states that now is not the time to be making wholesale changes to the existing executive remuneration framework.
On 20 June 2011, the Senate passed the Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Bill 2011, which incorporates the so called “two strikes rule”. Under the “two strikes rule”, shareholders will be able to demand a vote on whether to “spill” the board of directors (i.e. remove the directors) if more than 25% of shareholder votes oppose the proposed remuneration report at two consecutive annual general meetings. From the time the Productivity Commission first introduced the concept of the “two strikes rule”, it has been a hotly debated topic. Shareholder groups have welcomed the initiative, whereas company directors have strongly opposed the introduction of the rule, particularly given that the Act currently allows for shareholders to call for a board spill if they wish to do so (i.e. under section 249D of the Act).
CAMAC recommends that it would be more appropriate for it to review executive remuneration practices in a couple of years time, to allow for any changes required in response to the introduction of the “two strike rule” to be implemented and incorporated into executive remuneration practices.
In a move certain to please companies, CAMAC reiterates in the Report its view that executive incentives and remuneration arrangements are ultimately matters for a company’s board to decide given the dynamic nature of a company’s circumstances.
Importantly, CAMAC also recommends in the Report that:
- when determining key management’s remuneration arrangements, boards should consider the fixed and at risk components of the remuneration, the cash or non-cash and share or option component and the current and deferred consideration that is payable, amongst others;
- the current requirement for disclosure of remuneration arrangements in accordance with accounting standards (see section 300A of the Act) is removed;
- for each key member of management, the remuneration report (in a company’s annual report) sets out:
- the actual pay received by the executive; and
- any remuneration entitlements that have been granted in the preceding period but which have been deferred;
- in relation to termination payments to key management, the Act be amended to require specific disclosure of:
- post-severance arrangements;
- severance payments; and
- statutory and other accumulated entitlements (such as annual leave and sick leave).
Further updates in relation to executive remuneration will be provided as the law in this area develops.
Contact details
Sydney
Darren Pereira, Partner
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Melbourne
Dan Pearce, Partner
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Brisbane
Philip Vickery, Partner
T: +61 (0)7 3135 0632
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