HOST:
It's payback time as shareholders could soon have the power to vote out company directors if they are unhappy with the pay packets they award themselves. Directors could also lose their bonuses if they fail to deliver for investors under tough new draft legislation being released today. The legislation comes after recommendations made by the Productivity Commission's inquiry into executive pay and the changes could be in force from next July. The Parliamentary Secretary to the Treasurer, David Bradbury, says the changes will be good for shareholders.
BRADBURY:
Brigid, these reforms are designed to ensure that shareholders have a greater say when it comes to executive remuneration.
There are a number of reforms that we've announced. One of them, and the most prominent, includes the 'two strikes' rule. Under the 'two strikes' rule, where a remuneration report has received a 'no' vote of 25 per cent or more at two consecutive annual general meetings, shareholders will have the opportunity to move a spill of the board and that will mean within a 90 day period the company will have to reconvene so that shareholders will have a further opportunity to vote the directors off the board. We believe that this is an important measure because it ensures that, what we currently have in terms of a non-binding vote for shareholders, will now give shareholders an even greater say in influencing remuneration outcomes in their companies.
HOST:
Will this mean an end to excessive pay packets and golden handshakes?
BRADBURY:
We've always taken the view that it is not the role of Government to intervene in a heavy handed way and to start to cap executive salaries. We believe that ultimately this is a matter for shareholders and we should acknowledge that shareholders are the owners of companies and these reforms are specifically designed to ensure that some of those situations that we've seen in recent years where shareholders have expressed their strong disapproval of executive remuneration packages but directors have simply thumbed their noses at shareholders. Under these new reforms, shareholders will have the opportunity where their directors don't act upon their wishes to then vote them off the board and we think that it's an important measure in ensuring greater power for shareholders.
HOST:
As part of the legislation you have a clawback provision designed to ensure the board listens to shareholders, can you just tell us how this clawback provision will work?
BRADBURY:
The clawback proposal is contained in a separate discussion paper, it is not currently a part of the exposure draft we're consulting on. What the clawback proposal is all about is ensuring that where an executive's remuneration has been linked to the performance of a company and it is subsequently found out that the performance of the company has been misstated in a material way that there be an ability for shareholders to go back and clawback any of the gains that the executive has realised as part of that misstatement. It is really about ensuring that where there is a misstatement of fact, that shareholders don't end up wearing the downside as a result of that.
HOST:
David Bradbury, we'll leave it there, thanks for joining us.
BRADBURY:
Thanks very much Brigid.