Australian Treasury receives submissions on executive pay “remuneration recommendation” regulations

The Australian government’s executive remuneration legislation, including the new “2 strikes” rule, was a rushed affair that sought feedback over the Christmas and New Year break. This contravened the government’s own policy of a 3 month consultation period on all new legislation. Whatever the intent, the resulting legislation suffers from problems that could have been resolved with a longer consultation period. It is just as well the legislation allows regulations to be made to clarify many of the ambiguities within the legislation.

In May 2011, Treasury sought submissions on 1) what constitutes hedging activity that should be prohibited and 2) the types of advice that should be included or excluded from the definition of ‘remuneration recommendation’.

The submissions received by Treasury have now been made public, with most focussing on the definition of remuneration advice that should be disclosed. The submissions tend to cover ground that Guerdon Associates already identified in its original submission to Treasury on the executive remuneration legislation (see HERE).

However, there were some interesting suggestions to further narrow the definition of remuneration recommendation from the law firms. While, on the face of it, some of these suggestions could be regarded as additional rent seeking from vested interests, they should not be discounted, given the government’s sympathetic response to the law firm lobbying on the original Exposure Draft of the legislation.

These suggestions include:

a) Excluding internally generated advice and recommendations from persons who work in the capacity of an employee but are not strictly ‘employees’ of the relevant company (including persons who are employed by another group company, employees of management companies providing services to listed companies, persons who are seconded from other organisations, and individual internal consultants)

b) Clarifying the exclusion for factual information to clearly cover the provision of information or advice on market data and market practice, and the views of key stakeholders

c) Making certain that the carve out for advice regarding “the operation of the law” under section 9B(2) of the law covers drafting, reviewing and advising on employment contracts and incentive plan rules etc.

d) A special clarification to exempt advice to KMP on their own pay from an adviser where the fees are reimbursed by the company

e) Clarifying the remuneration consultants can work with management on the implementation of board decisions

f) Changing the exclusion for advice in relation to ‘all employees’ to an exclusion for advice ‘with broad application to employees, including KMP’ (because advice never relates to absolutely all employees)

Items a, c and d include legal firm advice and legal advisers who would otherwise not receive the exemption allowing them not to disclose their fees and conflicts of interest.

These and other issues are a function of how poorly the legislation was written, and will not significantly improve what is poor law. If the law was redrafted on a principles basis (as in the UK, and recommended by Guerdon Associates), anyone who provided material advice, internal or external, would be disclosed, plus the nature of any fees and conflicts of interest. The legislation might then make a positive contribution to executive remuneration governance.

© Guerdon Associates 2024
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