The Parliamentary Secretary to the Treasurer, the Hon David Bradbury MP, today introduced legislation to give shareholders unprecedented power over the pay of company directors and executives and strengthen the transparency of Australia's executive remuneration framework.
The Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Bill 2011 implements the Government's response to the recommendations made by the Productivity Commission in its recent inquiry into Australia's remuneration framework.
"This Bill will ensure that we have an internationally competitive system of executive remuneration that is transparent and accountable and that gives shareholders more power over the pay of company executives and directors," said Mr Bradbury.
"Shareholders, who are the owners of a company, take on the risk of investing their capital. They share in a company's profits and losses, and the Gillard Government believes they deserve more say over how the pay of company executives is set.
"Through these responsible reforms, we want to address conflicts of interest that exist in the remuneration setting process and promote a culture of responsible remuneration practices."
The key measures to improve the remuneration framework include:
- strengthening the non-binding vote on remuneration, by giving shareholders the opportunity to remove the directors if the company's remuneration report has received a 'no' vote of 25 per cent or more at two consecutive annual general meetings;
- providing accountability and transparency with the use of remuneration consultants;
- eliminating conflicts of interest by prohibiting directors, executives and their closely related parties from participating in the vote on the remuneration of key management personnel;
- ensuring that the link between remuneration and performance remains closely linked by prohibiting directors and executives from hedging their incentive remuneration; and
- requiring shareholder agreement for declarations of 'no vacancy' at an annual general meeting, should the number of board positions filled be less than the maximum number specified in the company's constitution.
The draft legislation was released for public consultation, which concluded last month.
"I would like to thank all of the stakeholders that participated in the consultation process. The Government has carefully assessed all views in revising and settling the legislation", Mr Bradbury said.
The Government reforms are intended to take effect from 1 July 2011.
23 February 2011