International Law

Director and executive remuneration bill introduced

By David Jacobson

The Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Bill 2011 has been introduced into Parliament with the intention that it be passed to enable commencement by 1 July 2011.

Changes have been made since the exposure draft was released.

The key measures include:

• for listed companies, strengthening the non-binding vote on the remuneration report, by requiring a vote for directors to stand for re-election if a board proceeds with its remuneration proposals despite the company?s remuneration report receivings a ?no? vote of 25 per cent or more of its shareholders at two consecutive annual general meetings (the ?two-strikes? rule). Where this occurs, shareholders will vote at the second AGM to determine whether the directors will need to stand for re-election within 90 days. If this resolution passes with 50 per cent or more of eligible votes cast, then the ?spill meeting? will take place within 90 days. The re-election resolution will be triggered where both strikes occur after 1 July 2011;
• companies that are a disclosing entity will be required to disclose details in the remuneration report relating to the use of remuneration consultants. Under the new law, a company?s engagement of a remuneration consultant must be approved by the board or remuneration committee and the remuneration consultant must report to the non-executive directors (unless the board consists only of executive directors) or the remuneration committee (unless the company does not have a remuneration committee), rather than company executives. A remuneration consultant that makes a remuneration recommendation for a company that is a disclosing entity will also be required to make a declaration that the recommendation is made free from undue influence by key management personnel(KMP) to whom the recommendation relates. The proposed measures relating to the advice from remuneration consultants apply to advice given under contracts executed on or after commencement (1 July 2011);
• for listed companies, KMP and their closely related parties will be prohibited from participating in the non-binding vote. In addition, KMP and their closely related parties will be prohibited from voting undirected proxies on all remuneration related resolutions. However, the prohibition will not apply if the person is the chair of the meeting at which the resolution is voted on and the shareholder expressly provides informed consent for the chair to exercise the proxy even if the resolution is connected, directly or indirectly, with the remuneration of a member of the KMP of the company or consolidated entity .
  The proposed prohibition on KMP (and their closely related parties) voting undirected proxies in remuneration related resolutions applies in relation to voting on or after commencement (1 July 2011), irrespective of whether the matter that is the subject of the resolution relates to a time before, on or after 1 July 2011.
• KMP and their closely related parties will be prohibited from hedging the KMP?s incentive remuneration. The proposed prohibition on hedging applies to entry into arrangements on or after commencement (1 July 2011), irrespective of whether the remuneration was for services rendered before, on or after 1 July 2011.
• Public companies will be required to obtain the approval of its members for a declaration that there are no vacant board positions, should the number of board positions filled be less than the maximum number specified in the company?s constitution ( ?no vacancy? rule). If agreed, the declaration lasts until the following AGM. Any appointment of a director made while the declaration is in place must be confirmed by a resolution of members at the following AGM, or the appointment lapses at the conclusion of that AGM. The provisions will apply in relation to the setting of board limits on or after the date commencement (1 July 2011).
• For all companies, proxy holders (including the Chair) will be required to cast all of their directed proxies on all resolutions. The new provision will apply to polls demanded on or after the commencement of the provision, whether the proxy was appointed before, on or after that commencement (1 July 2011).
• For groups, under the new law, remuneration disclosures will only be required for the KMP of the consolidated entity. The proposed measure applies in relation to remuneration reports for financial years starting on or after commencement (1 July 2011).

Full post as published by Australian Regulatory Compliance Review on February 23, 2011 (boomark / email).