Contributions to this article by Louisa Blackwood,
In response to community concerns and the Productivity
Commissions' recent inquiry into executive remuneration, the
Government has introduced the Corporations Amendment (Improving
Accountability on Director and Executive Remuneration) Bill
The Bill takes effect from 1 July 2011.
A summary of some of the key amendments introduced by the Bill
are set out below.
Prohibition against hedging of incentive remuneration
Under the current law, key management personnel (ie persons with
authority and responsibility for planning, directing and
controlling the activities of a company) (KMP) can hedge their
exposure to incentive remuneration. In 2007, the Corporations
Act 2001 (Cth) (Act) was amended to require companies to
disclose their hedging policy and how they enforce their hedging
As a result of the Bill, KMP will no longer be able to hedge
their incentive remuneration. As a result of this prohibition, the
current disclosure requirements regarding hedging policies will
become redundant and will no longer be required.
The 'two-strikes' test
Under the new law, a 'two-strikes and re-election'
process will be introduced for the non-binding shareholder vote on
the remuneration report and will operate as follows:
if a company's remuneration report receives a 'no'
vote of 25% or more, the company's subsequent remuneration
report must set out the board's proposed action in response to
the 'no' vote
if the company's subsequent remuneration report receives a
'no' vote of 25% or more, a spill resolution must be put to
shareholders at the same annual general meeting (AGM) (note that
notice of the spill resolution must be included with the notice of
AGM to ensure that notice is given if the 'second strike'
the spill meeting must be held within 90 days.
At the spill meeting, individuals who were directors when the
directors' report was considered at the company's most
recent AGM will be required to stand for re-election (other than
the managing director, who is permitted to hold office indefinitely
without being re-elected under the ASX Listing Rules).
The new law will apply to resolutions on the remuneration report
that are passed after 1 July 2011. Accordingly, a spill resolution
will be triggered if both strikes occur after 1 July 2011.
Prohibition against KMP voting on remuneration matters
Under the Bill, KMP who are shareholders will be prohibited from
voting on the non-binding shareholder vote on the remuneration
report and on any spill resolution. Further, KMP may only vote
undirected proxies on remuneration-related resolutions if they are
the chair of the meeting and the relevant shareholder has expressly
given their consent for the chair to exercise their proxy.
The Bill introduces a requirement that the board or remuneration
committee approve the engagement of a remuneration consultant.
Remuneration consultants will also be required to report to the
non-executive directors or the remuneration committee, rather than
the company's executives (unless all directors are executive
A consultant who makes a remuneration recommendation in relation
to the KMP of a disclosing entity must also include a declaration
in their recommendation that it was made free from any undue
influence by the KMP to whom the recommendation relates.
A disclosing entity will also need to set out certain details
regarding the consultant in its remuneration report, for
the consideration paid for the remuneration recommendation
a statement that the board is satisfied that the
consultant's recommendation was made free from any undue
influence from KMP
details of any other advice provided by the consultant to the
company in the relevant financial year.
Persons required to be named in the remuneration report
Currently, the Act requires the remuneration details of KMP and
the five most highly remunerated officers (if different) to be
disclosed in the remuneration report of both a parent entity and
the consolidated entity.
Under the new law, remuneration disclosures will only be
required for the KMP of the consolidated entity.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
In the years following the global financial crisis of 2008 many Australian investors lost their life savings as financial products failed and the Australian Stock Exchange shed over 3,000 points.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).