On Thursday November 16 Treasury released proposals from its Corporate and Financial Services Regulation Review (read it HERE). Treasury acknowledges that duplication exists in executive and director remuneration disclosure requirements between the accounting standards and the Corporations Act 2001. The government proposes to remove duplication by placing the requirements exclusively in the Corporations Act 2001.

As things stand now, only those parts of the remuneration report that are also required by accounting standards are subject to audit. The new proposals require all of the report to be subject to audit.

The current requirement to show the minimum value of options (which is always zero) and the maximum value (which can never be validly determined in any case) has been removed. This will save a few small trees, but not that many, as surprisingly few companies complied with this requirement anyway.

As expected, and flagged by Guerdon Associates some months ago (see HERE) company policies towards executive hedging of equity pay are required to be disclosed, as is the process for enforcing this policy.

The Government also proposes that all companies that are disclosing entities be required to prepare a remuneration report. This is an extension in scope to include unlisted companies that are disclosing entities under the Corporations Act 2001. The accounting standards also set out remuneration disclosure requirements for non-corporate disclosing entities. However, these have only recently been applied to these entities. The Government will monitor the application of the remuneration disclosure requirements in the accounting standards by non-corporate disclosing entities before considering whether to incorporate them into the Corporations Act 2001. With the recent media coverage and debate on better disclosure of remuneration for investment trusts, we expect that the Government will receive many submissions to have these also covered by the Act.

As part of this proposal:

1. All companies that are disclosing entities would be required to prepare an audited remuneration report;
   
2. The current requirements in AASB 124 paragraphs Aus25.2 to Aus25.7.2 would form the basis for the Corporations Act 2001 disclosure requirements, but these will be supplemented to include disclosures currently required in the Corporations Act 2001 that are not covered by the requirements in AASB 124;
   
3. The current requirements to disclose the maximum and minimum value of option grants and the aggregate value of options that have been granted, exercised or lapsed during the period would be repealed;
   
4. The remuneration disclosures would be required by all ‘Key Management Personnel’ as defined in the accounting standards, but the definition would be supplemented to mandate disclosure of the five most highly remunerated executives; and
   
5. A new disclosure requirement would be introduced requiring companies to disclose the board’s policy on executives and directors entering into contracts to hedge their exposure to options or shares granted as part of their remuneration package and how the company enforces this policy.

Other changes will also impact director remuneration and disclosure. It is proposed that companies not be required to seek shareholder approval for providing small financial benefits to a director or spouse. The limit for “small” will be increased from $2,000 to $5,000.

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