Senior executives put on notice
By Lucy Battersby | smh.com.au | 01 October
Shareholder influence over executive remuneration and company board appointments will be greatly expanded if the recommendations of a draft Productivity Commission report on executive pay are adopted into legislation.
The recommendations give shareholders more influence over who can be elected to boards, stop executives from voting on their own pay, make directors more accountable for their executives' remuneration, and remove tax incentives for executives to sell their shares on the same day they leave a company.
Yesterday the Commonwealth Bank's chief executive, Ralph Norris, threw his support behind shareholders having a greater say in setting remuneration.
"There's a situation here where the shareholders, or the owners of the company, should have a very strong view with regard to remuneration," Mr Norris said. "All boards have to be very mindful of their shareholders.
Our chairman and the chairman of the remuneration committee talk very closely with our major investors and the advisers to the various fund managers."
The recommendations were supported by the Australian Institute of Company Directors, apart from the proposed "two strikes" rule which requires boards to stand for re-election if their remuneration report is twice rejected by 25 per cent of shareholders.
"The remuneration report could become a stalking horse for any issue," the institute's chief executive, John Colvin, said yesterday. "For this reason it creates some of the same problems thrown up by a binding vote on remuneration."
Last year the directors of 42 listed companies approved an executive remuneration report despite 25 per cent or more of shareholders voting against it, according to the shareholder adviser RiskMetrics.
And 13 boards approved remuneration reports despite more than 50 per cent of shareholders voting against it.
The Minister for Corporate Law and Financial Services, Chris Bowen, commissioned the report on March 19 to address concerns that executive pay had got out of hand.
The Federal Government will receive a final report on December 19 and then decide whether the recommendations should become legislation.
"Company directors ought not to reject too loudly these reforms, because it's the ongoing disquiet with executive remuneration that has invited this report," the managing director of the shareholder advisory firm Regnan, Erik Mather, said.
Shareholders were reasonable and rational people who were unlikely to abuse the "two strikes" power.
First published by Smh.com.au on October 01 2009
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