CAMAC releases executive remuneration information paper – does the government really want to prescribe incentives?
28/07/2010
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Regular readers will recall that the Minister for Financial Services, Superannuation and Corporate Law, Mr Chris Bowen, has referred several aspects of Australia’s executive remuneration framework to the Corporations and Markets Advisory Committee (CAMAC) for its consideration and advice  (see HERE).

In particular, the Minister has requested CAMAC to:

1.     Examine the existing reporting requirements contained in section 300A of the Corporations Act and related regulations and identify areas where the legislation could be revised in order to reduce its complexity and more effectively meet the needs of shareholders and companies; and

2.     Make recommendations on how best to revise the legislative architecture to reduce the complexity of remuneration reports;

3.     Examine where the existing remuneration setting framework could be revised in order to provide advice on simplifying the incentive components of executive remuneration arrangements; and

4.     Make recommendations on how best to revise the legislative architecture to simplify the incentive components of executive remuneration arrangements.

Points 1 and 2 pick up recommendations from the Productivity Commission, although it favoured establishment of an expert panel to advise on revisions to the Corporations Act architecture rather than a reference to CAMAC.  Points 3 and 4 represent a new intervention by the government, but are consistent with the ALP’s platform (see below).

To facilitate submissions from interested parties (which must be lodged by 13 August, 2010) CAMAC has now released an information paper setting out some of the approaches taken in Australia and overseas to:

         The structure and content of executive remuneration arrangements, including the use and implications of the various types of incentives; and

         Reporting on executive remuneration arrangements.

The CAMAC paper does not include any comparisons or evaluations of these matters (the paper is available HERE)

Guerdon Associates will be making a submission to CAMAC.  Not surprisingly, our key message will underline the fundamental conclusion of the Productivity Commission’s enquiry into executive remuneration just last year – that the design of executive remuneration should be left to company remuneration committees and boards.  It is part of directors’ fiduciary responsibilities to establish pay and incentive structures that meet the specific needs and circumstances of their company.  It is up to shareholders to assess how well the board does on this, and the beauty of the market-based system is that investors, and their money, will flow to companies that get it right and are differentiated.

Is pay complex.  Yes.  We have said this before.  As companies get bigger, so does their complexity.  More things matter, more things get measured, more things get paid for, and more things get paid for at different times.  But they can all be explained – cogently, crisply, transparently, and understandably.  But it will take longer to read.

The government’s desire to intervene in such matters should not come as a surprise – the ALP Platform as up-dated for the 21 August 2010 federal election (which is similar but not identical to the 2007 version) includes the following in the section headed ‘Improving corporate regulation for a stronger economy’, in Chapter 2 ‘Securing our future with responsible economic management’ –

“Transparency, accountability and disclosure are at the core of good corporate governance. Labor will ensure that obligations on companies and their officers result in comprehensive and comprehensible disclosures for shareholders and company stakeholders, and ensure appropriate accountability of company officers.

Labor will continue to improve corporate governance practices, the Corporations Act and related legislation to ensure that:

·        Performance-based executive remuneration arrangements are genuinely linked to long-term performance and consideration of the role of the remuneration consultancy industry in the setting of executive remuneration.

·        Companies fully disclose the remuneration, including options, termination payments, non-recourse loans and equity value protection schemes, of directors and senior management in a comprehensive and comprehensible manner and are accountable to shareholders.

·        Companies use their general meetings to appropriately communicate with shareholders

·         Shareholders retain the ability to call an extraordinary general meeting of a company and shareholders and institutional investors exercise their voting rights appropriately and regularly.

·         Appropriate penalties are imposed for breaches of the corporations law, in particular for insider trading and trading while insolvent.

·         The election of directors of listed public companies is transparent and direct voting of proxies is encouraged.”

The full ALP Platform is available HERE

© Guerdon Associates 2021
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