Working out who can and who cannot vote on executive remuneration at a general meeting is fraught with traps for both listed and non-listed entities. Severe penalties include up to five years’ jail and/or fines of up to $22,000 for key management personnel (KMP) who fail to comply with the new rules.
Chartered Secretaries Australia (CSA) has released a useful guide for steps companies can take to try to avoid their directors going to jail because of an inadvertent lodgment of votes by them, or a “closely related party”.
We have previously summarised the recently introduced Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Act 2011. It prohibits KMP, including directors and their ‘closely related parties’, from voting their own shares to adopt a remuneration report, or from voting undirected proxies on remuneration resolutions. Our summary can be found HERE.
Listed entities are also subject to restrictions on voting on remuneration-related resolutions under the ASX Listing Rules. While a chairman is still able to exercise undirected proxies on remuneration-related resolutions (other than the remuneration report and the spill resolutions) with shareholder consent, a drafting error in the government’s legislation means that there is no corresponding carve-out for the vote on the remuneration report or the spill resolution. See our summary and the progress on their amendment HERE and HERE.
It is important to note that a new, wider definition of ‘closely related party’ has been introduced for the purpose of these voting exclusions, which includes
- A spouse or child of the KMP
- A child of the KMP’s spouse (i.e. including children from a previous relationship)
- A dependant of the KMP or of the KMP’s spouse
- Anyone else who is one of the member’s family and may be expected to influence the KMP, or be influenced by the KMP, in the KMP’s dealings with the entity
- A company the KMP controls
- A person prescribed by the regulations for these purposes (no persons have as yet been prescribed).
The CSA has developed some useful steps companies can take to manage voting exclusions:
- Identify to whom a voting restriction applies
- Decide how the proxy form will be set out
- Provide relevant information to members of KMP
- Provide members of the KMP with a pro forma letter with instructions for nominee companies or trusts on not voting their shares
- Provide the details of the KMP, closely related parties and associates to the share registry and review KMP records regularly
- Review the processes put in place by the share registry
More detail on these steps, and suggestions for successful implementation can be found in the CSA’s guide HERE.© Guerdon Associates 2023 Back to all articles