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Australian government passes 2 strikes law

On 20 June 2011, the Senate passed the Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Bill 2011, without any amendments to the Bill previously passed by the House of Representatives.

In summary, the new law:

• Gives shareholders the opportunity to vote on whether the board should be spilled if the remuneration report receives "no" votes of 25% or more of the votes cast at 2 successive AGMs ("2 strikes");
• Introduces strict rules for the engagement and disclosure of remuneration consultants by ASX-listed companies;
• Prohibits key management personnel (KMP) and their closely related parties hedging KMP incentive remuneration (such as shares and options);
• Requires that shareholder approval be obtained for board "no vacancy" declarations;
• Prohibits KMP and their closely related parties voting (or voting undirected proxies) on the remuneration report and any 2-strikes board spill motion;
• Introduces measures designed to prevent proxy holders from "cherry picking" the proxies they exercise; and
• Limits remuneration disclosures in the remuneration report to KMP.

The provisions of the Bill relating to proxy voting will operate with effect from 1 August 2011. All of the other provisions of the Bill will apply from 1 July 2011.

In effect, 30 June 2011 financial year end companies will have their 1st strike counted from this year’s AGM if the outcome is a 25% or greater “no” vote on the remuneration report.