The revision of the Governance Institute guidelines on voting exclusions on remuneration-related resolutions at AGMs in August 2014 is a reminder of the great care that is required to ensure that all votes on such resolutions are validly cast.

 

Two areas where material changes have been made to the guidelines relate to:

 

1.    The clarification of the ability of the chair to vote undirected proxies on remuneration-related resolutions where specifically authorised to do so by the shareholder; and

 

2.    The uncertain legal situation that arises when a person whose remuneration is disclosed in the remuneration report as a member of Key Management Person (KMP) either ceases to be KMP or ceases to be an employee of the company.

 

The 2011 amendments to the Corporations Act to improve accountability on director and executive remuneration also introduced new voting exclusions. A member of the KMP or a ‘closely related party’ of a member of the KMP is prohibited from voting on the resolution for adoption of the remuneration report or on the motion to spill the board that is required if there is a ‘second strike’ vote against the remuneration report.

 

KMP or a ‘closely related party’ of a KMP appointed as a proxy can only vote those proxies on a remuneration-related resolution where the appointment specifies how the proxy is to vote on the resolution (a ‘directed’ proxy).  Confusion in the original 2011 amendments around the ability of the chairman to vote undirected proxies on remuneration-related resolutions was resolved by July 2012 amendments that confirmed the ability of the chairman to vote undirected proxies on remuneration-related resolutions where specifically authorised to do so.

 

It is important to note that the definition of ‘closely related party’ for these purposes differs from other regulatory ‘related party’ definitions.  In relation to voting on remuneration-related resolutions, a closely related party of a member of the KMP for an entity means:

 

·         A spouse or child of the KMP; or

·         A child of the KMP’s spouse; or

·         A dependant of the KMP or of the KMP’s spouse; or

·         Anyone else who is one of the KMP’s family and may be expected to influence the KMP, or be influenced by the KMP, in the KMP’s dealings with the entity; or

·         A company the KMP controls; or

·         A person prescribed by the regulations (at the time of writing, no person has been prescribed by the regulations).

 

The Governance Institute guidelines note that there are differing legal opinions as to whether KMP who have left the employ of the company or who are no longer categorised as KMP but whose remuneration is reported in the remuneration report can vote.  Whatever the legal position, there may be a perception of a conflict of interest if a former KMP votes on a remuneration report concerning their remuneration, and the provisions of the Act are intended to address such perceptions.  The guidelines suggest that it is therefore good governance for companies to:

 

·         Seek their own legal advice on the matter

·         Develop a policy on whether such KMP are legally able to vote and, if so, whether they should in any event be encouraged not to, and

·         Advise their registry accordingly.

 

The guidelines further note there may not be a perception of a conflict of interest in relation to voting on the remuneration report where a member of KMP is included in the remuneration report in the subsequent year for comparison purposes even though they are no longer categorised as KMP or have left employment with the company [we agree, given that disclosure is not required in such situations]. 

 

Our reading of s250R(4) is that a person who has been appointed as KMP subsequent to the end of the relevant reporting period, and whose remuneration is therefore not disclosed in the remuneration report, is not disqualified from voting on a remuneration-related resolution, although they would not be permitted to vote undirected proxies under s250BD.  We suggest it would be preferable if company policy excluded such KMP from voting on remuneration-related resolutions.

 

See the Governance Institute guidelines on managing voting exclusions on remuneration-related resolutions HERE.

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