DEBORAH CAMERON:
The Federal Government has moved to give share holders more power over executive pay increases. They'll now have the ability to vote to spill the board if they're unhappy with remuneration packages for executives. The changes passed through the Senate last night, and to talk about them a bit more this morning, I'm joined by the Parliamentary Secretary to the Treasurer David Bradbury. He represents the Western Sydney seat of Lindsay, Mr Bradbury good morning.
DAVID BRADBURY:
Good morning Deb, how are you?
CAMERON:
Good thank you. Now, what sort of power resides in the hands of shareholders?
BRADBURY:
Well these reforms are very important because they are about giving share holders more power over the determination of pay packets of the executives of companies. As you may be aware, under the law as it currently stands, shareholders have the opportunity to express a non-binding vote at the Annual General Meeting. So when you go along to the Annual General Meeting, the directors will put forward a remuneration report to set out all of the details of what the key executives within the company are being paid and the shareholders get the opportunity to express a view on that. Unfortunately in a number of cases, what we've seen in recent years have been shareholders express their dissatisfaction with the salaries that have been awarded to different executives, and boards have continued to award packages that have been viewed by the shareholders as excessive.
So under these new arrangements which will come into effect on 1 July, we've introduced a new 'two-strikes' test. Under the 'two-strikes' test basically each of the strikes relates to a vote that shareholders will have to consider at successive Annual General Meetings, if more than 25% of shareholders vote down a remuneration report at those two consecutive Annual General Meetings, then shareholders will have the opportunity to move a motion which would need majority support, but if that majority supported motion were to get up, that would spill the board. It would then require a fresh election of the directors of the board.
Really, it's shifting the power towards shareholders to ensure that where they express their dissatisfaction there is going to be, I think, a greater degree of responsiveness from boards. This will ensure that concerns raised by shareholders are taken on board.
CAMERON:
Have you had any immediate feedback from Chairmen, Chief Executives or other key board members as you've been designing this new approach?
BRADBURY:
We certainly have, Deb, and this is a process which has been going on for some years. This was initiated back in March 2009. We had a very extensive consultation process which was lead by the Productivity Commission. They handed down a number of recommendations most of which were adopted by the Government. Now we've gone through extensive consultation around the details of the law itself and it's now been through the Parliament. But I think it would be fair to say that this has received overwhelming support with shareholder groups and other stakeholders which have a focus on corporate governance.
There has been some resistance and I think this is certainly a matter for public record, but there has been some resistance from some of the stakeholders, the Business Council, the Institute of Company Directors, but we think we've struck the appropriate balance here. I think it's important to recognise that the shareholders are the owners of the company. They're the ones who have put their capital in to the company, and they take on the risk that comes with that. But where boards are handing down salaries to executives that are out of line with shareholder expectations, then we think there needs to be a mechanism by which a greater sense of responsiveness can be enforced and we think that is what this does.
CAMERON:
And often this is where executives have paid themselves magnificent amounts of money at a time when shareholders have actually had their dividends crimped which is always the most astonishing kind of judgement of what is success really in corporate Australia at times. Will this bring that more into reality? Where if a company has underperformed, the results for its executives are not better than the results that shareholders get the benefit of.
BRADBURY:
Well certainly that is the view that I would expect shareholders would take.
On the one hand we want to attract the best and brightest people to be managing and running our companies. If we want to be internationally competitive, we need to do that.
But equally, we're all left scratching our heads when there is a situation where a company's performance has been pretty poor and at the same time some bonuses and other forms of remuneration being offered that really do stand in contrast to the underlying performance of the company.
What this set of proposals, and I've mentioned the 'two-strikes' test but there are a range of other measures which are contained within this package, one example of that is that we have introduced a prohibition on executives being able to hedge against their remuneration. Obviously this goes very much to the question of the performance of a company. If you've got executives out there which have got performance-based pay and at the same time they're out there hedging against the performance of the company, then that would seem to us - and indeed the Parliament endorsed this in the passing the laws - we think that is an inappropriate situation and the conflict of interest.
So I think the question you asked goes to the central part of what we're trying to achieve here and that is achieving a greater sense of alignment between shareholders' interests, and the packages that are being handed down. Now clearly that would mean that if a company is not performing well, shareholders have a very legitimate expectation that we shouldn't be seeing increased remuneration packages in that context.
CAMERON:
My guest this morning is David Bradbury who is the Parliamentary Secretary to the Treasurer. He is also the Member for the Western Sydney electorate of Lindsay and therefore in a truly hot seat. Now, Mr Bradbury on the carbon tax issue, there seems to be a lot of water that is still yet to go under the bridge with this, how is it playing out in your electorate which is genuinely a hot seat?
BRADBURY:
Well this is a difficult issue, there is no question about that. It's been a difficult issue for successive Governments of all persuasion and we've seen that. The Howard Government grappled with this, not all that successfully, obviously our first term in Government has been widely reported upon.
I think there is no question that when you're undertaking a reform of this magnitude, particularly in the context of a pretty vicious scare campaign in relation to what it would mean for the cost of living impacts for families, it is always going to be difficult. But I think that one of the things that guides me, and I have many discussions with people from the community about these issues, one of the things that guides me is the need to tackle what is a massive challenge for our economy and our community.
If we are serious about taking the decisions which the future generations of this country will demand of us and to maintain the standard of living that we all have taken for granted then we do have to take action on climate change.
I understand that there is a lot of concern out there and we will be working hard to make sure that the package of compensation arrangements ensure that people who are low and middle income earners are not left worse off. We will try and protect them from these impacts. But at the same time, there's a wide recognition within my community that we cannot continue to rely upon fossil fuels, to be creating the environmental impacts that we are, and we need to begin to transition to a better way of doing things.
That's not an easy exercise, Government is not easy and we recognise that but I think that this is the right thing to do, and that's why we're tackling it and it's why we will work as hard as we can to try to implement any reforms we can get through in a way that's not just in the best interests of the nation generally, but all of those families which fear the cost of living impacts. We don't want people to be worse off, but in the end we've got a responsibility to take long term decisions for what is right for us and future generations.
CAMERON:
Mr Bradbury, thanks for your time.
BRADBURY:
Thanks Deb.