SUBJECTS: Executive remuneration, Productivity Commission, shareholder engagement, G20, APRA
STEVE CHASE:
Mr Bowen, what is the Government's initial response to what is after all a draft report?
CHRIS BOWEN:
Well as you say, this is a draft discussion report; it's out for community consultation. The Productivity Commission will come back to Government in December with their final recommendations. I think my initial reaction would be the Productivity Commission's worked very hard to get the balance right on this question. It is an issue of balance. There are some vexed questions and the Productivity Commission has done a very good job at trying to get the balance right, but they've put this out for consultation to see if there are any unintended consequences of their suggestions and that's a process that we'll let flow through.
CHASE:
They say the salary cap won't work. That would stymie your options somewhat.
BOWEN:
Well look, I've always had the view that a salary cap wouldn't work; it would be unworkable and counterproductive. I do think there are other things that we can do to bring more transparency and accountability to executive pay. I think the Government's held that view for some time and these recommendations are a very important step in that process.
CHASE:
What are you attracted to in the report, by way of substantive action, to get the shareholders involved in determining what is an adequate level of corporate salary?
BOWEN:
Well look, I don't intend to go through and rule things in and out of a draft report. They're not even final recommendations to the Government yet and when we get those final recommendations we'd need to work through them.
But I think what the Productivity Commission has tried to do is engender more shareholder engagement; that is, engender more engagement from boards with their shareholders, particularly via their suggestion of 'two strikes and you're out', if you like. So if a substantial proportion of shareholders vote against the board's recommendations on executive pay for two years in a row, then the entire board would be up for an election. That would be quite a radical approach and one that will engender a lot of debate and the Productivity Commission needs to assess as to whether there'd be any unintended consequences of that. But I think it's an interesting and innovative way of achieving that objective of encouraging more shareholder engagement.
CHASE:
Now, I understand that you want to engender a lot of public debate on this particular issue. Take us through the timetable. You say it's a draft report; you'll get the final recommendations. It looks as though we'll be well into next year, which as you well know will be an election year, before we actually get any concrete action.
BOWEN:
Well, you're right, we won't receive the final report until December, and that would mean any legislative response would come in the first half of next year. But this also needs to be seen in the context of other action that the Government is taking in this area. We've already passed through the House of Representatives our crackdown, if you like, on excessive termination pay, by putting in a much lower threshold before shareholders get to have a say on that. APRA is working very diligently within the G20 on executive remuneration in the financial sector in particular, and the G20 have adopted APRA's approach as effectively their benchmark.
So there are a range of things happening here and this Productivity Commission report is one of three arms of Government policy that are being implemented to bring more accountability and transparency to executive salaries.