The Parliamentary Secretary to the Treasurer, David Bradbury, today released draft legislation to give shareholders unprecedented power over the remuneration of company executives.
The release of the exposure draft of the Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Bill 2011 is the next step in implementing the Gillard Government's reforms to Australia's executive remuneration framework.
These reforms implement the Gillard Government's response to the recommendations made by the Productivity Commission in its inquiry into executive remuneration in Australia.
"These measures are about giving more power to shareholders, as well as improving the transparency, disclosure and accountability of the remuneration process.
"Executives should be appropriately rewarded for their work and for the value they bring to a company if Australian companies are to remain internationally competitive, but directors should also be accountable to shareholders for the level and composition of executive remuneration.
"Shareholders take on the risk of investing capital and share in the company's profits and losses. As the owners of a company, they deserve more say over the remuneration of company executives.
"Among the measures in the draft legislation is a 'two-strikes' rule, which will give shareholders the opportunity to vote out a company's directors if the company's remuneration report receives a 'no' vote of 25 per cent or more of its shareholders at two consecutive annual general meetings.
"After these 'two strikes', a resolution supported by a majority of shareholders can force a spill of the board and shareholders can vote to remove the directors at a subsequent meeting to be held within 90 days of the second annual general meeting.
"The reforms are also designed to ensure that executive remuneration remains closely linked to the performance of a company by banning directors, senior executives and their closely related parties from hedging against their remuneration packages.
"We are also introducing measures to improve accountability and transparency, by prohibiting directors, senior executives and their closely related parties from voting on their own remuneration packages, including through the use of undirected proxies.
"The draft legislation also tightens rules around the 'cherry picking' of proxy votes and introduces new rules requiring shareholder approval to hold open board positions.
"While the Productivity Commission concluded that Australia's executive remuneration framework is highly ranked internationally, these reforms are required to increase public confidence in the way in which executive salaries are determined.
Consultation on the Bill will continue until 20 January 2011. The Bill can be found at www.treasury.gov.au. The Government intends to introduce the Bill into Parliament in the first half of next year with an expected start date of 1 July 2011.
As part of its response to the Productivity Commission's inquiry, the Gillard Government is also releasing a Treasury discussion paper for consultation on a proposal to 'clawback' remuneration paid to executives where the company's financial statements are materially misstated. This proposal is in addition to the measures recommended by the Productivity Commission.
"These reforms build upon the work already done by the Government in improving accountability on executive remuneration.
"In November 2009 the Government introduced limitations on 'golden handshakes' to corporate executives, and earlier this year the Australian Prudential Regulation Authority tightened regulations around remuneration for executives in the financial sector in line with new global standards," said Mr Bradbury.
The Treasury discussion paper on the additional 'clawback' proposal will be open for public consultation until 30 March 2011, and can be found at www.treasury.gov.au.
20 December 2010