executive remuneration discussion draft released

1 October 2009

The Productivity Commission was tasked with ascertaining what has happened to executive pay in Australia's publicly-listed companies as well as what can and should could be done about it. Its proposals are contained in the recently released report, Discussion Draft about Executive Remuneration in Australia.

While the Commission recognised that excessive remuneration can reduce public confidence, the call for executive pay to be capped was rejected.

The Commission has recommended a range of reforms to improve the existing regulatory framework. The five key areas of proposed reform are:

Board capability

End the 'no vacancy' rule to:

increase scope to enhance board diversity
increase shareholder power so only general meetings can set the maximum number of board directors

Conflicts of interest

ensure remuneration committee independence —ASX300
promote remuneration committee independence — ‘comply or explain’
prohibit executives and directors voting on remuneration
prohibit executives hedging
prohibit executives and directors voting undirected proxies on remuneration matters
oblige all directed proxies to be charged

Disclosure

improve information content and accessibility of remuneration reports
remove superfluous disclosure — KMP only
require remuneration advisers to be independent of management — ASX300
require remuneration advisers to be disclosed — ‘comply or explain’
institutional investors to disclose their voting on remuneration reports

Remuneration principles

Finding 1: Remuneration ‘check list’ for boards
remove taxation point impediment to deferred equity

Shareholder engagement

confirm allowance of electronic voting
25 per cent ‘no’ vote on remuneration report triggers formal explanation and response
substantial ‘no’ vote on two consecutive remuneration reports triggers board election

The Commission is seeking written submissions on its draft recommendations by Friday 6 November 2009. Public consultations will take place on 27 October (Melbourne) and 9 November (Sydney). The Commission's final report will be sent to the Government by 19 December 2009.

The Commission's overview is available here and the full report is available here.

Pat Mullins| Partner
Mullins Lawyers
t +61 7 3224 0350
f +61 7 3224 0333
pmullins@mullinslaw.com.au