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. This means the Bill will become law as soon as it receives Royal Assent.
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.
The more contentious provisions of the Bill are:
i. The two-strikes rule, under which shareholders will be required to vote on whether to spill all board positions if the vote in favour of the remuneration report at two successive AGMs is 75% or less. The “spill resolution” will be put at the second AGM and, if passed with 50% or more of the eligible votes cast, will require a meeting (the “spill meeting”) to elect directors to be held within 90 days (unless all of the directors other than the MD who were in office at the second AGM have been replaced on the board at that time). The bill includes a mechanism to ensure that a minimum of 3 directors remain after the spill meeting. Directors who survive the spill meeting serve for their original term of office, without extension.
ii. The rules for the engagement of a remuneration consultant who is to provide advice in relation to KMP. Any such consultant must be approved by the board or remuneration committee before a company enters into a remuneration consultancy contract. Remuneration consultants will be required to provide their advice directly to the directors of the company or the remuneration committee (excluding executive directors unless all of the directors are executive directors). It will be a strict liability criminal offence for a remuneration consultant to provide their advice to anyone else.
Remuneration consultants must provide a declaration that their advice is made free from undue influence by the KMP to whom the advice relates.
Disclosure will be required for financial years ending on or after 1 July 2011 of:
– The name of remuneration consultants who have provided advice in relation to KMP remuneration, a statement that the consultant made a ‘remuneration recommendation’ and the fees paid for the advice
– Whether the consultant provided any other kind of advice to the company for the financial year, and the amount and nature of the fees paid for such advice
– Information of the arrangements the company made to ensure the remuneration advice was provided free of undue influence from KMP, a statement about whether the board is satisfied the remuneration advice was provided free from undue influence and the board’s reasons for being so satisfied.
iii. The new rules relating to the no vacancy rule. The ‘no vacancy’ rule allows a board to declare that it has no vacant positions even though the maximum number of directors allowed by the company’s constitution has not been reached.
Under the new provisions, public companies will be required to obtain the approval of shareholders 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. 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 full Bill is available HERE
Previous GuerdonNews® articles on the Bill are available HERE
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