Most Read Contributor in Australia, September 2016
The Corporations and Market Advisory Committee
(CAMAC) recently released its report regarding
executive remuneration (Report). The Report was
prepared in response to the Productivity Commission's Report on
Executive Remuneration in Australia (December 2009), which was
released in the aftermath of the global financial crisis at a time
when executive remuneration was attracting intense public
The Report specifically addresses requests that the then
Minister for Financial Services, Superannuation and Corporate Law,
the Honourable Chris Bowen MP put to CAMAC for its consideration.
These were for CAMAC to:
consider potential ways in which the existing legislative
framework regarding executive remuneration under the
Corporations Act 2001 (Cth) (Act) and the
Corporations Regulation 2M.3.03 can be revised to "reduce its
complexity and more effectively meet the needs of shareholders and
make recommendations on how to best revise the legislative
architecture to reduce the complexity of remuneration reports.
While CAMAC does recommend that some specific changes are made
to the existing executive remuneration framework, the Report states
that now is not the time to be making wholesale changes to the
existing executive remuneration framework.
On 20 June 2011, the Senate passed the Corporations
Amendment (Improving Accountability on Director and Executive
Remuneration) Bill 2011, which incorporates the so called
"two strikes rule". Under the "two strikes
rule", shareholders will be able to demand a vote on whether
to "spill" the board of directors (i.e. remove the
directors) if more than 25% of shareholder votes oppose the
proposed remuneration report at two consecutive annual general
meetings. From the time the Productivity Commission first
introduced the concept of the "two strikes rule", it has
been a hotly debated topic. Shareholder groups have welcomed the
initiative, whereas company directors have strongly opposed the
introduction of the rule, particularly given that the Act currently
allows for shareholders to call for a board spill if they wish to
do so (i.e. under section 249D of the Act).
CAMAC recommends that it would be more appropriate for it to
review executive remuneration practices in a couple of years time,
to allow for any changes required in response to the introduction
of the "two strike rule" to be implemented and
incorporated into executive remuneration practices.
In a move certain to please companies, CAMAC reiterates in the
Report its view that executive incentives and remuneration
arrangements are ultimately matters for a company's board to
decide given the dynamic nature of a company's
Importantly, CAMAC also recommends in the Report that:
when determining key management's remuneration
arrangements, boards should consider the fixed and at risk
components of the remuneration, the cash or non-cash and share or
option component and the current and deferred consideration that is
payable, amongst others;
the current requirement for disclosure of remuneration
arrangements in accordance with accounting standards (see section
300A of the Act) is removed;
for each key member of management, the remuneration report (in
a company's annual report) sets out:
the actual pay received by the executive; and
any remuneration entitlements that have been granted in the
preceding period but which have been deferred;
in relation to termination payments to key management, the Act
be amended to require specific disclosure of:
severance payments; and
statutory and other accumulated entitlements (such as annual
leave and sick leave).
Further updates in relation to executive remuneration will be
provided as the law in this area develops.
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.
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