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February 21, 2012

Further changes to executive remuneration rules

The Government has announced further changes to the regulation of executive remuneration including changes in response to CAMAC's 2011 report on executive remuneration.

Draft legislation to enact these reforms is expected to be released for public consultation in the latter half of 2012.

The Government will amend the Corporations Act 2001 to require listed companies to disclose to shareholders through the remuneration report the steps they have taken to clawback bonuses and other remuneration where a material misstatement has occurred in relation to the company's financial statements.

If the company has not clawed back any remuneration, the board will be required to provide a detailed explanation to their shareholders. If shareholders are unhappy with the company's actions, they would be able to use their powers under the two-strikes rule to vote down the remuneration report and potentially spill the board.

Other proposed reforms to the executive remuneration framework include:

  • relieving certain unlisted entities from the obligation to prepare a remuneration report; and
  • inserting disclosure requirements relating to related party transactions into the Corporations Regulations, as these disclosure requirements will be removed from the accounting standards from 1 July 2013.

The Government has agreed to the following CAMAC suggestions:

  • section 300A CA will require companies to set out in their remuneration report a general description of their remuneration governance framework;
  • the remuneration report will disclose any options that have lapsed in the current financial year and indicate the year(s) in which they were granted. There should be no obligation to include a value for the lapsed options.
  • The obligation in section 300A(1)(e)(vi) to disclose the percentage of the value of remuneration that consists of options will be repealed as it can be deduced from information already required by Corporations Regulation 2M.3.03.
  • section 300A(1)(e)(vii) will be amended to require the disclosure of all payments (including entitlement payments, severance payments and post‑severance payments) for key management personnel upon their retirement from the company, regardless of whether those payments were provided under a contract of employment.
  • a requirement that the remuneration report disclose, for each key management personnel, crystallised past pay, present pay and future pay. The Government also intends to consult on the need for disclosure of dividends on unvested shares paid to key management personnel.

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Posted 21st February 2012 by David Jacobson in Corporate Governance, Corporations Act