New “simplification” law requires more executive pay disclosure!
02/07/2007
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Remember government’s rah-rah about simplifying the Corporations Act? They forgot to mention the complicated bits. In fact, the new bill requires directors to disclose more in their remuneration reports.

Regular readers will recall that we first flagged over a year ago that the government was to introduce anti-hedging regulation in regard to executive incentive pay (see here and also here). So we were understandably perplexed that the government failed to announce that this was to be in their Simpler Regulatory System Bill that we brought to your attention here. We suspect that the government ommitted to mention it because of its incongruity with the government’s message that they were trying to reduce the regulatory burden!

In any case, being the sceptics that we are, we kept an eye out for the legislation. As we suspected, we discovered that the version just passed by both houses had that bit extra that was not in the government’s press release (see here).

The new requirements read:

“…if an element of the remuneration of a person referred to in paragraph (c) consists of securities of a body— discussion of board policy in relation to the person limiting his or her exposure to risk in relation to the securities, and the mechanism to enforce the policy; …”

That is, directors’ remuneration reports now have to disclose executive share option anti-hedging policy. Unfortunately, there is more “simplification”.

The government also repealed Subparagraph 300A(1)(e)(iv). This is the bit where you had to report the value of options granted as remuneration that had lapsed. We guess they figured out that this bit of law was not very edifying, being as a lapsed option is not worth very much.

Unfortunately, they decided to fill up the hole (perhaps they were concerned that remuneration reports may get too short?) by replacing the repealed paragraph with a new paragraph now requiring:

“…. (iv) if options granted to the person as part of their remuneration lapse during the financial year because a condition required for the options to vest was not satisfied—the value of those options (worked out as at the time the options lapse, but assuming that the condition was satisfied); and …”

We are not quite sure how useful this will be to shareholders, and suspect it may be about as useful as the version it replaced, except that it will be a bit more expensive to comply with. Perhaps there is a reason for requiring companies to spend more shareholders’ money getting an external valuation of lapsed options at the time of lapse, as if they had not lapsed, from companies like Guerdon Associates? The only reason we have come up with so far is that this piece of law really is designed to keep consulting fees flowing to companies like us for valuations.

At the risk of shooting ourselves in the foot, we would rather spend our time and our clients’ money doing useful things.

These changes apply from June 28, so they affect financial reports relating to the 2006-07 reporting period ending on 30 June 2007.

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