David Bradbury (Lindsay, Australian Labor Party, Parliamentary Secretary to the Treasurer) Share this | Hansard source

The government would like to thank those honourable members that have taken part in the debate on the Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Bill. It is important that we have a system of remuneration that is not only internationally competitive but that also appropriately rewards executives for the value that they bring to a company. At the same time, directors should be accountable to shareholders for the level and composition of executive remuneration. As shareholders are the owners of their companies, they deserve more say over how the pay of company executives is set. While Australia's remuneration framework is relatively strong and has been acknowledged as such by the Productivity Commission, the global financial crisis highlighted a number of issues relating to remuneration structures. In particular it illustrated the dangers of remuneration structures that focus on short-term results, reward excessive risk taking and promote corporate greed.

In March 2009 the government asked the Productivity Commission to undertake a broad review of Australia's remuneration framework. Following a comprehensive inquiry the Productivity Commission found that Australia's corporate governance and remuneration framework is highly ranked internationally. However, it also recommended a range of reforms to further strengthen Australia's remuneration framework. The government supported and further strengthened the majority of the recommendations. This bill implements many of these recommendations and introduces measures that will empower shareholders to influence the remuneration decisions of their company.

The bill requires company boards to be responsive to shareholder concerns on remuneration issues and, if they fail to do this over two consecutive years, they will be held accountable by having their re-election fast-tracked through the two-strikes process. The bill also facilitates the independence of remuneration consultants by introducing requirements about who must approve the engagement of a remuneration consultant and who the remuneration consultant must report to. The bill also ensures that shareholders are able to make an informed assessment about the independence of the remuneration consultant. The bill requires the board and the remuneration consultant to provide a declaration of independence as well as requiring disclosure of key details, such as the fees the remuneration consultant was paid.

The bill also contains a number of other important measures. The bill prohibits the company's directors and key executives or key management personnel and their closely related parties from voting their shares in the non-binding vote on the remuneration report. This will address the conflicts of interest that arise with key management personnel voting on their own remuneration. The bill prohibits key management personnel from hedging their incentive remuneration. This will ensure that remuneration remains linked to performance. The bill prevents boards from declaring 'no vacancy' without explicit shareholder consent. This will ensure that the board cannot operate in a closed shop fashion and will provide greater scope for shareholder oversight on issues like executive remuneration. Finally, the bill prevents proxyholders from cherry picking which proxies they exercise, which will enfranchise shareholders who choose to vote by proxy.

The government will also be moving amendments that would delay the application date of three of the bill's measures from 1 July to 1 August 2011. These measures are the prohibition on key management personnel and their closely related parties from voting their shares in the non-binding vote on remuneration, the prohibition on exercising undirected proxies on remuneration related resolutions, and the prevention of cherry picking of proxies. The amendments provide transitional relief to firms facing difficulties in their preparations during May and June for annual general meetings scheduled for July 2011 because the bill remains subject to parliamentary consideration. As the delay in application affects only three measures, the broad policy purpose of the bill would continue to be applicable from 1 July 2011. The coalition have circulated some amendments which they have proposed and I would like to turn my comments to those amendments now.

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