The Advisors' Blog

– Broc Romanek, CompensationStandards.com

As noted in the excerpt below of this article from Manifest (a European proxy advisor service), Australia may take the concept of say-on-pay further than proposed here in the US (here is the Australian’s full response on this topic):

Australian Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen has delighted Australian shareholders with plans to introduce extensive executive remuneration reforms designed to force boards to be more accountable and give shareholders more power.

In a ringing endorsement of the Productivity Commission’s review of executive pay which was published in January this year, the Rudd administration has announced that it will introduce legislation to implement many of the PC’s 17 recommendations, including the “two strikes” proposal, which will strengthen the non-binding vote on remuneration and set out consequences where companies do not adequately respond to shareholder concerns on remuneration issues.

As currently proposed, the two strikes and re-election resolution would work as follows:

– 25 per cent ‘no’ vote on remuneration report triggers reporting obligation on how concerns addressed; and
– Subsequent ‘no’ vote of 25 per cent activates a resolution for elected directors to submit for re-election within 90 days.

It is not clear whether it would be the entire board to be submitted for re-election, just the remuneration committee or the chairman, however there will be a further opportunity for input as there during the consultation process ahead of the final drafting of amendments to the Corporations Act 2001.

An unexpected but welcome addition to the proposals is a “claw-back” provision which would require a director or executive to repay to the company any bonuses calculated on the basis of financial information that subsequently turned out to be materially misstated. Bowen asserted that the introduction of a claw-back provision “warrants further analysis, as it would help strengthen the ability of shareholders to recover overpaid bonuses that have occurred as a result of materially misstated financial statements.”

Issuers have expressed their concerns in the Australian media calling the proposals “heavy handed”. Speaking to ABC News, John Colvin from the Institute of Company Directors said: “We’re a bit perplexed and quite frankly bemused at why we would have such a heavy-handed, red-taped, legislative approach to this area,”

“Whilst there are examples of, and we acknowledge those, of pay outcomes which haven’t been in line with either company expectations… on the whole Australian remuneration of corporate governance has been very good.”

The Australian Shareholders Association (ASA) said that the response was “much stronger than they had anticipated.”

“We think that it’s a very well-measured, very well-considered report,” said an ASA representative “from the ASA’s point of view it certainly went a little bit further than we had asked, but we’re very positive about the recommendations and we’re very hopeful that they’ll have the effect of making boards much more accountable on this issue which is very important to shareholders.”