Further reforms for executive remuneration framework announced
The Federal Government has announced it will be introducing reforms to further strengthen the country’s executive remuneration framework.
The next phase of reforms has been developed after a consultation process on a proposal for ‘clawback’ and will also implement several recommendations made by the Corporations and Markets Advisory Committee (CAMAC) to improve disclosure in remuneration reports.
Under the reforms, listed companies will be obliged to disclose to shareholders through the remuneration report the steps 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.
“These reforms put the onus on listed companies to make sure they have provisions to clawback bonuses and other pay from executives if there has been a material misstatement of a company’s financial statements,” Secretary to the Treasurer David Bradbury said.
“If they don’t, they run the risk of shareholders recording a ‘strike’ against them at their annual general meeting when they vote on the remuneration report and potentially voting to spill the board and force fresh elections of directors.”
In response to CAMAC’s 2011 report on executive remuneration, the Government will be improving disclosures contained in remuneration reports, by requiring more transparent disclosure of termination payments or ‘golden handshake’ payments. Unnecessary disclosure requirements will be removed to simplify remuneration reports, and clearer categorisation of pay will be introduced to better enable shareholders to understand the company’s remuneration arrangements.