HOST:
On the line this morning David Bradbury, he's Federal Labor's Parliamentary Secretary to the Treasurer, and he joins me this morning. David, good morning to you.
BRADBURY:
Good morning Phillip how are you?
HOST:
I'm very well. Is this going to actually do anything or is it just a bit of papering over the cracks?
BRADBURY:
Well I think we have to be very clear about what the intention of these proposals is, and these involve the implementation of the Government's response to the Productivity Commission's inquiry into executive remuneration. The Productivity Commission set out a range of recommendations and we have adopted 16 of the 17 recommendations, and the exposure draft of legislation that we are releasing today gives people an indication of how we intend to implement those reforms.
You asked the question whether or not it's going to do anything about executive salaries, and the issue here as far as the Government is concerned is to ensure that shareholders have a greater say in relation to these packages. I think it's important that we do put the focus on the shareholders because shareholders are the ones that take on the risk of investing their capital in the company. They share in the profits and the losses. In the end, we believe that they should have a greater say in determining these packages. And what we've seen in the past is where there has been a non-binding vote on executive remuneration matters that quite often the directors have ignored the will of the shareholders. We say that this is not appropriate, that there needs to be a greater capacity for shareholders to assert their will and through the introduction of a two strikes rule, we think that will give shareholders that ability.
What they will be able to do is where a remuneration report has received a no vote from 25 percent or more shareholders at two consecutive annual general meetings, that there will then be an ability to force a spill of the board. So what we then have is the directors will have to be facing the prospect of possibly being voted off the board, and we think that this really does strike an appropriate balance between ensuring that there's some stability in the way in which our boards operate - and our economy needs that - but also ensuring that shareholders, who are, after all, the owners of these companies, have a greater say on executive pay packet issues.
HOST:
Why is it needed anyway? After al,l companies are free to make their own arrangements. If they want to pay their CEOs a lot of money, whose businesses is it other than the companies' themselves?
BRADBURY:
Well I couldn't agree with you more in relation to the sentiment that you express. But we have to go back to corporations law 101 and that is that shareholders are the owners of companies. It's not the directors that own them.
HOST:
Yeah but as we know, Mr Bradbury, in reality at shareholders meetings, meetings are controlled by the blocks of large shareholders. The average run of the mill shareholder has no say whatsoever.
BRADBURY:
If we have a look at the Productivity Commission's report, which was released last year, we see that there are a number of examples cited within that report where on the non-binding vote, which is what's currently in place, more than 25 percent of shareholders voted against the remuneration report. So what we see from that report is a large number of instances where, if these rules were currently in place, there would actually be a no vote being cast. What we've sought to do is say gone are the days where a no vote can simply have the directors thumb their nose at shareholders. If shareholders vote down a remuneration report, and directors choose to ignore that, then they will face the prospect of being voted out. And I think that that's a very powerful sanction. It's one that does ensure that shareholders, as I said, who are the ultimate owners of the company have a greater say on these matters.
HOST:
I think that most people looking at these things would take the view that no one minds success and that people love it, people want to be successful and those people who are successful ought to be rewarded. No question about that. The question is the disproportionate size of the reward and the club that seems to exist amongst big companies and their chief executives. Does anyone seriously think, for example, that the Commonwealth Bank would be less well run if you didn't pay Ralph Norris $16 million but if you paid him $5 million?
BRADBURY:
Well look I think the point you make about perceptions of a club that's running these corporations is one that is more than a perception and in fact there is some justification to that viewpoint. Some of the things that we are doing as part of these reforms that extend beyond the two strikes rule, strike at the heart of the club mentality that has sometimes existed on our boards. And I'll give you one example of that, which relates to what we call the no-vacancy rule. Now this is a rule that is sometimes invoked by directors in order to choose not to fill all of the positions that their company may be entitled to have on the board under the constitution.
Now, the significance of that has been to shift a considerable amount of power into the hands of the existing board members. We're actually introducing a rule under these reforms that requires those directors, if they want to enforce this no-vacancy rule, that they have to have the consent of shareholders before they do that.
So there are a range of things that we can do. In the end, if people are looking for us as the Government to intervene and to cap salaries or to reduce them then I simply say that that is not the role of Government, but what is important and what we need to do is to ensure that there is some transparency and accountability in the way in which shareholders who own their companies watch on and see these packages struck up.
HOST:
You see what gets up peoples nose is the fact that CEOs in times of drama, and we've seen this in the GFC, say we've all got to trim our belts and pull our heads in and so forth and wages need to be cut and people need to be laid off. And yet they see the people making these decisions earning tens of millions of dollars. I mean, in your opinion, in your personal opinion, is anybody worth $16 million to run a company?
BRADBURY:
Well, look, in my personal opinion I wouldn't pay someone $16 million dollars to run a company. But then again, I wouldn't pay Tiger Woods the $70 million dollars that he gets paid every year. These are matters that are not within my personal control, but what I would say is that you made the point about executives claiming increases in their salaries -
HOST:
Just go back to the Tiger Woods example for a second. I mean there's a difference there. Tiger Woods at least earns these things of his own exertions. Does Ralph Norris - I don't want to single Mr Norris out because there's plenty of other examples - but him for example, is it really the case that he's going to earn all of that $16 million dollars of his own exertions or is it simply that that's the arrangement that he will get this?
BRADBURY:
Look, you know, I think we could get into a debate about whether or not, you know, there is a qualitative difference between the exertions of Tiger Woods and Ralph Norris, but I think the point that we are trying to make is that in the end, shareholders are the ones that own these companies and they should have a greater say. If shareholders believe that executives are providing value to their company, let's just be clear about this, the more an executive gets paid, the less the shareholders get by way of a return in the form of –
HOST:
Although typically, the more they get because their share value has increased. Usually their packages are tied to share value aren't they?
BRADBURY:
Well, can I come to that point in just one moment. But, obviously, improved performance in the company is good for shareholders and shareholders will take that into account. But, we want to make sure that those cases that have existed in the past where shareholders' wishes have been denied and these pay packets have been awarded against the will of shareholders, there needs to be some ability for shareholders to correct that and to exercise their will. If I could just make the point about a link between incentives and performance of the company, this is a really important point that one of the initiatives we are implementing as part of these reforms is to ban directors and executives from being able to hedge against their bonuses. And what has been the case in the past in some instances, is where performance pay is part of the remuneration package, particular executives have been out there engaging in hedging activities so that they can't lose even if the performance of the company doesn't move in a positive direction. Now we say that you need to align the interests of the executives with the interest of the company and that is one of the measures that underpin these reforms.
HOST:
Ok, good to talk with you.
BRADBURY:
Good to talk to too you Phil.
HOST:
Thankyou, bye. David Bradbury, Parliamentary Secretary to the Treasurer.