Gai Brodtmann (Canberra, Australian Labor Party) Share this | Link to this | Hansard source

The Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Bill 2011 is a step forward in ensuring that shareholders and Australians generally have faith in the accountability of directors and senior executives of Australian companies and, most importantly, in the fairness of their pay. It does this not by regulation but by an approach that respects the need for firms to operate freely in the market, at the same time giving shareholders the power they need to make sure that senior executives truly earn their pay.

This is far from the only area in which this government shows a decisive preference for market based solutions over regulation, a preference one would hope would be more widely shared and appreciated by those opposite. I say 'appreciated' because, just listening to this debate in the last few days and last night particularly, my colleagues in the Labor government were portrayed as crazy red raggers living in some socialist nirvana: every morning we leap out of bed, flick through our copy of the little red book, read out our favourite passages, sing a few rounds of The Internationale and then march off to work under the fluttering banner of the Soviet flag.

Ed Husic (Chifley, Australian Labor Party) Share this | Link to this | Hansard source

That is what I do!

Gai Brodtmann (Canberra, Australian Labor Party) Share this | Link to this | Hansard source

Is that what you do? Was that this morning? Okay! I remind those opposite of what the Labor government—not just this Labor government but also Labor governments in the past—has done in introducing market based solutions for this country. In the 1980s we opened up the economy, we opened up markets, we opened up banks and we opened up the country, particularly to the Asia-Pacific. We cut protection. Most recently, since 2007 we have saved this economy from the global financial crisis. I hardly regard that as some sort of mad, red-ragging socialist bunch of people crazily singing The Internationale every morning.

The issue of remuneration has been at the forefront of the minds of shareholders and the Australian community for some time, an issue more pressing following the corporate collapses associated with the global financial crisis. People around the world were rightly outraged that senior executives continued to receive large pay packages—so-called performance bonuses and golden parachutes—at a time when their companies were failing, leaving many average employees without jobs and their homes at risk. We in this country were spared the full extent of the effects of the global financial crisis thanks to the quick actions of the Labor government. But Australians remain highly concerned about the rates of executive pay. This concern is sharpened by the disparity between the pay packets of senior executives and those of average Australian working families. I am struck by the Productivity Commission's findings on this. The Productivity Commission reports that the top CEOs of Australian public companies receive pay some 110 times average Australian weekly earnings. This compares with the earnings of the CEOs of Australia's smallest companies of just four times average Australian weekly earnings. In some cases, CEO remuneration grew by as much as 300 per cent in real terms between 1993 and 2007.

Australians do not have a problem with other hardworking individuals earning more pay than they do. But they do have a problem with these remuneration packages, bonus schemes and golden parachutes being bestowed regardless of the actual performance of the individual. Given this, it is easy to understand why these packages are so hard for people to accept. We should not be surprised at the level of anger and mistrust that exists over this issue. Such mistrust is not healthy, as it undermines the basic strong sense of fairness that Australians have and the trust that is needed for a society based on the free market to function.

There have been efforts in the past to ensure that management teams look after the best interests of shareholders, principally by linking performance to share value. This worked up to a point. But research shows that this linkage has been distorted. It has emerged that there are a number of factors that go into the calculation of remuneration, some of which are reasonable, some of which are the result of what can only be described as gaming. As the Productivity Commission mentioned, while local shareholder value plummeted in 2008 as the result of the GFC, the imported crisis, with some countries and sectors being propped up by taxpayers, executive pay seemed to emerge unscathed, crystallising a view that executives were being rewarded for failure after having been rewarded for success.

The argument that these packages are required to acquire and keep the best talent is also not supported by available evidence. One journal article notes that there is a turnover rate for senior executives of between four per cent and six per cent. The article states that it is a matter of judgment whether a turnover rate of five per cent is sufficient to create market pressure to raise levels of compensation by itself. It is also questionable whether independent remuneration committees are by themselves capable of better linking performance with reward, given some of the biases and conflicts of interest that may result. In fact, Jennifer Hill and Charles Yablon, who are regular commentators on this issue, have noted that even carefully constructed remuneration packages will frequently provide corporate manager with incentives to use their strategic advantage within the company to prefer their own interests over those of the shareholders.

This bill seeks to address these problems and allay the concerns of shareholders and Australians as a whole by implementing changes to the Corporations Act recommended by the Productivity Commission. It seeks to address the imbalance between shareholders and management and provide some much-needed help to ensure that boards are responsive to the concerns of shareholders. But rather than imposing a government limit on remuneration this bill seeks to make boards more accountable for their decisions on pay, improve the manner in which conflicts are dealt with and increase transparency and accountability in executive remuneration matters.

It achieves these things by introducing the so-called three-strikes test. This test creates a process by which directors will face a spill motion on their position if over two consecutive years a company's remuneration report has been rejected by 25 per cent or more of the votes. Should this spill motion be passed, directors will need to seek re-election at a spill meeting within 90 days of the AGM. This will make directors accountable for their decisions and responsive to their shareholders.

This bill also seeks to bring greater transparency to the role of remuneration consultants. This measure reflects the concern expressed by some shareholders that remuneration consultants are placed in a potential conflict situation when they have to provide their advice, in the first instance, to the very managers who are responsible for signing off on their services in the future. Obviously, this has the potential to create a situation whereby the consultant may feel constrained in what advice they can provide. To counter this potential conflict, this legislation will require that the reports of independent consultants go first to the non-executive directors or a remuneration committee rather than company executives.

This bill also seeks to eliminate situations where key management personnel or closely related parties are voting on pay issues. The bill will prohibit such parties from voting on non-binding remuneration votes, which otherwise may distort the results and diminish their effectiveness as a feedback mechanism.

The government is also committed to strengthening the link between performance and remuneration. That is a really important point to make. This bill will prohibit directors and senior executives from hedging their incentive remuneration. It is currently possible for a director or senior executive to hedge their exposure to incentive remuneration, thereby effectively bypassing the link between performance and pay. This is not consistent with the principles underlying a remuneration framework that seeks to ensure pay is fairly linked to achievement. I do not think that that is too much to ask.

This bill is a comprehensive approach to the issues of remuneration of Australian boards and senior executives. It seeks to answer the questions and concerns of the community and shareholders over the issues of excessive executive pay, particularly in the light of poor performance. It does this without placing restrictive or draconian regulation on companies or by interfering drastically in the marketplace. I want to underscore that point, because from the way that the people opposite have been talking it seems that they view it as quite the contrary. It does not interfere in the marketplace. This bill enhances Australia's corporate governance framework, particularly transparency. It provides shareholders with the power they need to effectively monitor their own companies to ensure that boards and senior executives are delivering on the organisational outcomes and are rewarded accordingly. It gives shareholders the power to say no to packages that reward failure or poor performance, and it improves the governance of companies to ensure better reward for good performance and no reward for failure. Most importantly, it benefits not only shareholders but the economy as a whole. The benefits of this legislation are clear, and I commend it to the House.

Dan Tehan (Wannon, Liberal Party) Share this | Link to this | Hansard source

I rise today to talk on the Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Bill 2011. The coalition will not oppose this bill but we will seek to make an important amendment to it. We will do that to make sure that we get the balance right in this bill. While we are broadly supportive of the objective to achieve better alignment between shareholders and boards on the issue of executive remuneration, we are concerned about the potential for unintended consequences which can flow from excessive and overly prescriptive regulation in this area—and, sadly, the Labor government have a strong history of excessive and overly prescriptive regulation. They continue to want to throttle the life out of business in Australia, and that is why we have to make sure that we get the balance right in this bill.

This bill implements recommendations of the Productivity Commission in its recent inquiry into executive remuneration in Australia, which reported on 4 January 2010. Concern around the issue of executive remuneration led to the review by the Productivity Commission. The review commenced in 2009 and received 170 submissions, showing that this is an issue which the community and the business community take incredibly seriously. The final report was provided to the Australian government on 19 December 2009.

An exposure draft elicited further comment and changes to the proposed legislation. The bill's main provisions include requiring a vote for directors to stand for re-election if they do not adequately address shareholder concerns on remuneration issues over two consecutive years, the so-called two-strikes rule; changing regulation with respect to the use of remuneration consultants; prohibiting directors and executives from voting their shares on remuneration resolutions; prohibiting the hedging of incentive remuneration; requiring shareholder approval for declarations of 'no vacancy' at an annual general meeting; requiring that any directed proxies are voted and voted as directed; and reducing the complexity of the remuneration report by confining disclosures in the report to the key management personnel.

Change to voting arrangements must be careful not to distort the wishes of the majority of shareholders. The views of a minority should not too easily hold the majority hostage. When it comes to the level of support required to reject a remuneration report, a process that can lead to a spill of the board, we believe the bar has been set too low. We believe that an active minority could disrupt company proceedings if this bill is passed as it is.

We will be moving an amendment in relation to the threshold for rejecting the remuneration report. As currently proposed, the threshold for the two-strikes rule is 25 per cent of votes cast. The coalition will be moving an amendment to require the threshold to be 25 per cent of the total votes available to be cast, and this is an important amendment. Twenty-five per cent of the votes cast means that you could have seven per cent of company shareholders voting to remove a board. This is dangerous because, if you had an active minority wanting to disrupt the ongoing proceedings of a company, with this threshold they could do just that. We want to introduce an amendment which provides a sensible safeguard. Moving to a threshold of 25 per cent of the total votes available to be cast seems to me a very sensible proposition and one which the House and the parliament should be able to agree on. As I have said, this will prevent a small number of shareholders dictating a result which is not shared by a majority of the passive non-voting shareholders. We will not oppose this bill but we want to make a sensible amendment which provides balance to it. I urge the House and the parliament to support our amendment.

Laura Smyth (La Trobe, Australian Labor Party) Share this | Link to this | Hansard source

I am very pleased to speak on the Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Bill 2010, which strikes such a sensible balance in the community debate around director and executive salaries, bonuses and incentives. I am also pleased to see that the opposition will ultimately be supporting the bulk of this legislation, although, given the remarks of some of those speakers during the course of this debate, it has obviously been quite a struggle to reach that very reasonable view. I have been particularly interested to hear remarks from opposition members in the debate about overregulation, which is quite a curious line of argument for a group of people who are ultimately going to support this bill. I really have to admire the ability of those members opposite who ran that line of argument with no shame. It is quite a balancing act and quite a skill. Some of those opposite seem to think that the coalition had a marvellous track record in minimising regulation when in government. I suspect that those members were possibly harking back to the wafer-thin volume of Work Choices regulations, or possibly the mere pamphlet that was John Howard's GST legislation. I really have a feeling that, during the break, some members opposite have been passing around old Family Ties DVDs, because there is more than a little bit of Alex P Keaton in the debate we have seen from the other side of the chamber, both in this session and at the end of the last. They seem to still be convinced by a curious and entirely fictional notion that they stand for small government and lessening regulation—and, suddenly, Reagan is back in the White House. They may want to have a quick recap on some of the regulatory interventions of the Howard government during its decade and more in office to perhaps disabuse themselves of that view. In any event, it is more than a little disingenuous to come to this place and masquerade as a free marketeer and then proceed to support the legislation with little more than a fig leaf amendment. But I will leave all that aside now because, as with so many other things, the opposition's views on this legislation ultimately will not rate, even as a footnote.

This legislation developed by the government is a timely and even-handed regulatory response to genuine community concerns about executive remuneration. Those concerns came to the fore during the global financial crisis. Members of the opposition have said that we should not try to drag down people who have done well for themselves—that is, executives who have been paid significant sums—as though that was the intention of the legislation. No, it is about making sure that mums and dads, self-funded retirees and all others who invest in shares directly and indirectly can be confident that the savings they have scraped together to buy a few shares are not being squandered and that the companies they invest in are being managed sensibly and prudently.

Obviously this legislation will have consequences for remuneration itself. But, more importantly, the legislation is focused on ensuring the confidence of the community generally, and investors in equities in particular, in the prudent management of the companies in which so many Australians invest their earnings. The bill responds to both the matters raised during the Productivity Commission inquiry on this issue and the findings of the commission. The commission took into account very wide-ranging submissions from the community, after extensive consultation. It noted in its report that the prime motivation for its enquiry was a 'widespread perception that executives have been rewarded for failure or simply good luck'. The report goes on to say that 'certainly in some periods and for some CEOs, pay outcomes appear inconsistent with a reasonably efficient executive labour market'. This is reflected in the submission made to the enquiry by Professor David Peetz, of Griffith University. Professor Peetz's submission notes that the growth rate of CEO pay between 1971 and 2008 was around 470 per cent, while for the same period average weekly earnings growth was around 54per cent. On any sensible view, members will certainly realise that that is out of kilter with community expectations about what are reasonable levels of pay for CEOs.

The Productivity Commission noted:

If the community came to regard executive pay as the product of poor corporate governance or weak regulation, this could undermine public confidence in the corporate sector itself, potentially detracting from the ability to raise equity capital and distorting the allocation in investment funds.

This is a genuinely held concern about maintaining public confidence in our companies. It goes to whether people will believe that putting their money into shares is a good prospect, whether it will generate a good return or whether it will simply prop up inefficient and overpaid executives. These are reasons why a regulatory response of a balanced and reasonable kind that is being presented here today is responsible and timely.

The Productivity Commission considered that certain trends in executive and director remuneration in Australia were inconsistent with effective executive labour markets and may actually have had the effect of weakening company performance. In particular, it cited incentive payments and termination payments as examples of such trends, noting that certain executive incentive payments may have delivered an unintended upside and that some termination payments considered by the Productivity Commission seemed excessive. Although the commission ultimately found that Australia's existing corporate governance and remuneration framework does rank highly internationally, it made various recommendations to improve that framework; many of those recommendations are reflected in the bill before us.

Members will recall that, in early 2009, this government announced reforms to limit excessive termination benefits given to outgoing directors and executives. This was the beginning of reform in this area and we are now taking the next steps. My own experience in working with boards, and in relation to corporate governance, does lead me to expect that most company boards will act appropriately in relation to director and executive pay and that they will and do give due regard to the expectations of shareholders. We know that many boards are already very mindful of their responsibilities and community expectations in this regard. We also know that they take very seriously their commitments to corporate social responsibility. It will be only those boards which are out of step with the kinds of shareholder expectations and community standards which are likely to be subject to the two strikes provisions of the bill. So I do consider that the bill reaches a very sensible balance between the interests of shareholders, the expectations of the wider community and the desire of businesses to give incentives to their executives to generate growth.

Importantly, this bill will enable shareholders to hold directors to account for their decisions on executive salaries. It will better enable conflicts of interest in the remuneration-setting process to be addressed. It will increase transparency and accountability in matters of executive pay. It is appropriate that shareholders, who ultimately bear the risk associated with the performance of companies in which they hold equity, have an opportunity to thoroughly scrutinise remuneration packages. The bill does this and provides for those safeguards and balancing measures through a variety of means. Speakers on this side in the debate have already referred to the two-strikes test, which would arise in the context of a company putting its remuneration to shareholder vote. It is a measure that is consistent with the underlying expectations in the Corporations Act that directors will be responsible for, and accountable to, shareholders in relation to all aspects of the management of a company, including executive remuneration.

As we have heard, the bill also includes measures relating to remuneration consultants, which will deliver greater transparency for shareholders as they will be in a position to assess potential conflicts of interest in a more successful way. The bill will help to prevent conflicts of interest by prohibiting key management personnel and their related shareholding entities from voting on remuneration related resolutions. The bill also seeks to ensure that the link between remuneration and performance is maintained by prohibiting directors and executives from hedging any incentive remuneration afforded to them. Finally, the bill contains measures to limit the remuneration details required to be disclosed in the remuneration report to the key management personnel of the consolidated entity. This simplifies the disclosures in the remuneration report to enable shareholders to better assess and understand the company's remuneration arrangements. It is intended to reduce the regulatory burden on companies, while maintaining an appropriate level of accountability.

In conclusion, despite the observations made by those on-again off-again free marketeers on the opposition benches about overregulation, members should understand that this bill strikes a balance between the interests of shareholders, the expectations of the wider community and a desire of business to give appropriate incentives to their executives to generate growth. It goes no further in amending the Corporations Act than is necessary to achieve those very eminently sensible aims.

Alan Tudge (Aston, Liberal Party) Share this | Link to this | Hansard source

I rise to speak on the Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Bill 2011. As you would be aware, Mr Deputy Speaker, this bill arises out of the recommendations of the Productivity Commission report into executive remuneration. It reported on 4 January 2010, and this bill aims to implement its recommendations. We on this side of the House support the intent of this bill, and the coalition will not be opposing the bill. However, I have some reservations in relation to it which I would like to outline today. Some of the measures are overly prescriptive and I am not convinced they will actually be effective in addressing the particular problem which we are concerned about.

To properly assess this bill, there are three questions that we should be asking. First, what are the problems that we are trying to fix? Second, are the existing mechanisms sufficient to fix those problems? Third, will the proposals that are on the table in this bill work to fix the problems? I would like to go through each of those three questions in turn.

First of all, what are the problems that this bill is trying to fix? There is a community concern with executive salaries, particularly those for publicly listed companies. There are many senior executives in this country who are earning very large amounts of money on an annual basis. There are about nine people in the banking sector, I understand, who earn above $5 million per annum. In the mining sector, there are people earning up to $15 million or $16 million per annum who are heading up publicly listed companies. The managing director of Coles apparently earns in excess of $8 million.

These are extraordinary amounts of money by anyone's measure. I personally struggle to see how anyone is worth that amount of money, but a high salary alone does not necessarily mean there is a problem. The owners of a company should be able to pay whatever they believe is appropriate to their executives. After all, it is their company. If the owners of the company believe that their CEO should be paid $500,000, that is their decision. It should not be the job of the government to interfere with those decisions of the owners of companies to determine what the appropriate remuneration is for their executives. A problem only exists if the board, which sets the salary on behalf of the owners of the company, the shareholders, is not acting in the best interests of the shareholders in setting that remuneration—that is, there is an agency problem there or a conflict of interest arises.

The government has not presented coherent evidence that directors of Australian companies are indeed acting against the interests of their shareholders when setting executive remuneration. However, there is certainly a belief that sometimes this is the case, and I believe that it is sometimes the case, particularly when executives are remunerated very highly despite the fact that a business might be collapsing, or when an executive receives a large bonus when that executive may not have had much to do with the performance of a company but rather it is due to, for example, commodity prices increasing or due to a government regulation which has underpinned the performance of that particular company.

That brings me to my second question: are the existing mechanisms available to fix the problem sufficient? As parliamentarians, we need to ensure that shareholders have appropriate degrees of protection and appropriate regulations to ensure that their interests and the interests of directors and executives are aligned. Shareholders need to be properly informed and properly empowered. But what are the existing mechanisms and are they sufficient? Already in the Corporations Act there are several mechanisms. There are the fiduciary duties. Directors have a legal obligation to act in the best interests of their shareholders, and there are some quite significant penalties if they do not do that. Second, there are some protections for minority interests in the Corporations Law. Finally, there is the ability for shareholders to sack directors if they do not believe that the directors are adequately representing their interests or if they have any concern in relation to the actions of the directors.

All of those are available presently. However, for small shareholders I understand that it is difficult to access some of those provisions. However, those provisions in the Corporations Law are the basic building blocks of the law that exist presently. What the Productivity Commission says is that, despite the presence of those existing protections, there is at least the opportunity for perception of conflicts of interest to arise and that this should be addressed directly. I support those intentions. That brings me to my third question: will the proposals on the table in the form of this bill actually fix the problem? There are seven measures in this bill and, while some of them are worthwhile, I do have reservations about whether they will make a decisive impact and I do believe that there will be some negative impacts associated with some of the provisions. The seven measures, all up, are intended to empower shareholders and prevent any real or perceived conflicts of interest. That intent is a good one, but we need to look at the details to determine whether or not that intent is actually delivered upon and whether or not the downsides of being overly prescriptive will outweigh the benefits.

Some of the seven measures do seem immediately sensible, in fact so sensible that it is surprising that some companies are not enacting these measures already. For example, one of the measures prevents key management personnel and parties closely related to them from participating in non-binding shareholder votes on remuneration and on spill resolutions. Clearly there would be a perception of a conflict of interest if the beneficiaries of the remuneration report were to vote on that remuneration report. So this seems to be a sensible provision.

Second, the bill will prohibit an executive hedging his or her executive remuneration. These days, executive remuneration is structured so that the interests of the executive are very closely aligned with the interests of the shareholders—so, if shareholders do well, the executive should be better remunerated. But there have been instances where some executives have taken hedges on the side such that their interests are less aligned, meaning that a change in shareholder interests will not have the same impact on the remuneration of those individuals. This particular measure will outlaw executives hedging against their remuneration structure. Again that seems like a reasonable and sensible thing to do and again I am surprised that directors would indeed today allow their executives to hedge against the executive remuneration incentives.

I think the cherry-picking rules included in this bill are also sensible as they also will empower shareholders. With some of the other measures, however, I question the impact. I have reservations about whether they will make a significant difference in addressing the problem of unaligned interests between shareholders and directors and I do not think that executive remuneration as a whole will come down as a result of this bill.

There are also some potential downsides to this bill. Overall it does add to the regulatory burden and the measures are very prescriptive. Joe Hockey, when introducing the coalition's response to this bill, said:

The best way to support business is often for the government to get out of the way.

I think we should always be very careful when introducing new regulations on top of all the existing regulations that companies have to abide by. When you look at some of the measures in this bill, they do appear to be very prescriptive. For example, one of the measures dictates how a company is to engage remuneration consultants. It seems to me that for this parliament to be determining how a company should engage remuneration consultants, or any other consultants, is very prescriptive. Surely it is up to the company to determine how it will engage consultants and the terms on which it will engage them? In relation to that provision, the president of the Business Council of Australia pointed out:

This is inevitably going to distract directors from their most important roles, which are not the minutiae of supervising remuneration consultants, but much more important roles of making wise decisions about business direction, major investments and the like.

The no vacancy rule, one of the seven measures of this bill, also has potential downsides. The principle inherent in that provision is again sound, but there are potential downsides in that it will reduce flexibility in how boards operate. Again referring to the Business Council of Australia, they point out that sometimes there are very good reasons to appoint fewer than the maximum number of directors at a particular time—the board may want to limit expenses, the maximum number may be too large to enable effective decision making or the board may be deliberately waiting for someone with a particular specialist expertise to go onto the board. This measure in the bill is going to force the board to make a rapid decision about a vacancy. I also have some concerns in relation to the two-strikes test and how it will operate. Indeed, the coalition will be moving amendments in this regard.

In summary, having gone through the three questions I think we should be asking ourselves to properly assess this bill—is there a problem; are the existing mechanisms sufficient; and will the proposal fix the problems?—I come down marginally in favour of the bill. I hope it will have the impact intended, but I have my doubts. If it achieves nothing else, however, this bill should send a clear message to corporate Australia that the Australian people and its representatives in this parliament are concerned about excessive executive remuneration and that we do want corporations to be responsible in this regard. If corporations get that message and act upon that message, I think that will have more impact on this issue than any regulations we might introduce in this House.

Stephen Jones (Throsby, Australian Labor Party) Share this | Link to this | Hansard source

We are here today speaking on this bill for some important policy reasons that have a deep impact on our nation's character and Australia's egalitarian culture and traditions. Executive pay has seen some exceptional growth since the 1990s—around 13 per cent per year in real terms for the top 100 companies and 16 per cent for companies in the ASX top 50. In 2008-09, the estimated total remuneration for CEOs of the top 20 companies was around $7.2 million, or 110 times the average wage. This rapid growth in executive pay has been occurring at the very same time that these companies have been calling for wage restraint for their own employees and in the economy at large and opposition has been expressed to even modest increases in the minimum wage, while their peak organisation, the Business Council of Australia, was barracking for the coalition's unfair Work Choices legislation, which had, as its sole objective, the driving down of wages for ordinary Australian families.

While we are talking about the salaries of the very wealthy in our society, I want to state that I do not think that it is in Australia's national interest for the gap between top-income earners and low- and average-income earners to continue to increase at the rapid pace that we have seen in recent decades.

The bill before the House may go some way towards reigning in the excesses of executive remuneration, but it will not fix the structural problems arising from the existing income divide in Australia. I do not see how it is in anyone's interest if low-income earners are forced to struggle to feed, clothe, house and transport themselves and their families, despite being in full-time paid employment.

As has been noted recently by the Secretary of United Voice, Louise Tarrant, the recent history of Australia's economic development has seen a seen a restructuring of our economy so that risk has increasingly shifted from business and government to individual workers. This shift of risk has occurred through the loss of security of employment and the erosion of workplace protections such as sick leave, minimum hours and penalties.

Indeed, the coalition's Work Choices laws were designed to accelerate that shift of risk even further on to workers. Yet this transfer of risk has occurred at the very same time as corporate executives have increasingly been rewarding themselves for high-risk strategies, in particular through skyrocketing performance pay. That is why improving the accountability and transparency of executive remuneration is a welcome reform to Australia's framework of corporate governance systems for those of us on this side of the House and the constituencies that we represent. We believe that governments have an important role to play to ensure that our market based economy functions efficiently and effectively. That is because we believe that corporations are created by government, not by god, and the laws under which they operate are the laws created by people in this place and not the laws of nature.

Government regulation ensures that our economy works in the way that best reflects the interests of the broader community, of our interests as a society at large. In Australia we are fortunate to have a robust system of regulation in the corporate and financial sector and the measures in this bill represent further sensible and rational reforms to the corporate sector.

The reforms being put forward in this legislation have come about following a thoroughgoing review by the Productivity Commission. I commend the Productivity Commission for their informative report and their contribution to knowledge in this subject area. In their report on executive remuneration, the Productivity Commission noted that Australia's corporate governance and remuneration framework is highly rated internationally.

Our strong system of corporate governance served Australians well through the global financial crisis and it made the difference between the situation we faced in Australia and that faced by other countries in our region and in the Western world. But it is not the nature of a reformist government like ours merely to be complacent and to rest on our laurels. That is why the Gillard government and the Parliamentary Secretary to the Treasurer, the member for Lindsay, have brought this legislation before the House. It is Labor's view that the marketplace in relation to the remuneration of directors and executives is not working effectively as it could or should be. We believe that the appropriate mechanism to redress this is to increase the accountability of boards to the owners of companies—that is, their shareholders.

The measures in the bill before the House contain a number of provisions that will strengthen the accountability of boards and executives to their shareholders. First, the bill introduces a two-strikes rule that will require a board to better respond to shareholder concerns on remuneration issues. The mechanism for this two-strikes rule will be triggered where a company faces a 'no' vote by 25 per cent or more on its remuneration report for two years running. Where this occurs, and the board has not satisfactorily responded to shareholder concerns, that board will be subject to a 'spill' resolution. If more than 50 per cent of eligible shareholders vote to spill the board, there will be a requirement for the directors to stand for re-election at a subsequent meeting within 90 days.

This bill also contains important measures regarding the treatment of remuneration consultants to ensure better accountability and transparency in their role regarding remuneration matters. Transparency will be enhanced because companies will be required to disclose details relating to the use of remunerations consultants, including the consultant used and the payment made to that consultant for the advice or any other advice provided to the company. I fail to see, as the member for Aston said previously, how this is some form or onerous or burdensome regulation on boards, shareholders or companies at large.

In addition, boards will be required to approve the engagement of remuneration consultants and these consultants will be required to report their remuneration recommendation to the non-executive directors of the remuneration committee of the company concerned. Directors and executives will no longer be able to participate in the non-binding shareholder vote on their own remuneration or on the spill motions. This measure will remove a significant conflict of interest—which has been described by members opposite as completely obvious—between directors, executives and their votes in regard to remuneration matters, and it will also extend to votes by key management personnel and their closely related parties in regard to their undirected proxies.

Another common criticism made of executive remuneration is that it has focused too much on rewarding risk and short-term results rather than the long-term performance of the company. This situation was a particular characteristic of corporate behaviour in the United States in the lead-up to the global financial crisis and, regrettably, I believe it has yet to be satisfactorily resolved there, much to the detriment of American civil society. While the situation in Australia does not approach the level of corporate scandal in the United States, it is nevertheless critical to continue to be vigilant about defending the integrity of our system of corporate governance and to ensure that government regulation is working effectively to achieve its aims.

I think the bill before the House today demonstrates that where a system of self-regulation does not work then further regulatory steps need to be taken to guide market mechanisms towards better outcomes. It is a matter of public record that the existing system of non-binding votes has not had the desired effect on the actions of some boards in regards to the remuneration matters in their companies.

The standout example that I am very familiar with here is Telstra, which notoriously in 2007 was repudiated by an outstanding 66 per cent of shareholders for its handling of remuneration matters. The board at the time blithely ignored the vote and shareholders were powerless to do anything about it. The arrogance of the Telstra board in 2007 was shocking and was rightly condemned by many in the financial media and more broadly. It was ironic that at the very same time that this company was taking a very harsh attitude towards the treatment of remuneration for its own employees and their own workplace rights it was operating with complete disregard to community norms, as expressed by its shareholders, in relation to its own executive pay. I know that the current executive team at Telstra are working hard to redress the toxic culture that had developed as a result of previous management regimes and employment practices, and the blithe disrespect and disregard for community values, and everybody welcomes any move towards a more civilised and mutually respectful corporate culture in that company and elsewhere. I can only wish it well in this regard.

There are alternative proposals that have been talked about in this area. Some say that this regulation does not go far enough, and I must say that at times I have had sympathy with that view. The alternative proposal put by members opposite and foreshadowed in their amendment is that we should lift the bar even higher for shareholders—that is, the triggering of the two-strikes rule should not be based on 25 per cent of the votes cast, which would trigger the spill motion and the requisite action of the shareholders, but that it should be based on 25 per cent of the votes that are eligible to be cast at an annual general meeting of a company. Anybody who has had any experience of the practical operation of annual general meetings of most companies, particularly large companies with a large share registry, will know that this lifts the bar to an almost impossible level because it would be a very rare event indeed where 25 per cent of the eligible votes would be cast in a vote on a matter such as this.

While many of those opposite have risen to speak in favour of the sentiment and the intent behind this bill—to put more regulation and give more control to the shareholders to address outrageous remuneration packages by executives—their proposed amendment to this regulation will have quite the opposite effect. It would neuter the effect of the bill and neuter the ability of shareholders to have any real say in controlling the remuneration packages of their directors and executives.

The social contract in Australia that was the bedrock of our culture and our values has been severely challenged as executive pay has skyrocketed in recent decades. We cannot sit by and wring our hands each time we hear of multi-million dollar salaries being paid to corporate executives which are seemingly unrelated to the performance of their companies and the returns to shareholders. That is why I support the sensible measures in the bill before the House today, and that is also why I support the voices of others within the community in their continued campaigns to ensure fairness, security and dignity for all Australian workers, and that we do everything we can to narrow the gaps between the wealthy, the average Australians and the poor in this country.

Adam Bandt (Melbourne, Australian Greens) Share this | Link to this | Hansard source

The health and success of a society is best judged by the level of equality between its citizens. The gap between the rich and poor, the extent to which someone profits from the labour of others and the capacity of someone to reap enormous wealth at the expense of the Commonwealth have always been a measure of a sustainable and stable society. During the first three-quarters of the 20th century, Australia, like much of the developed world, was narrowing the gap between the highest and lowest incomes. The 1970s were the high point with the gap between rich and poor at its smallest perhaps in centuries, but since then the gap has been growing again, with most of the positive trends of the 20th century wiped out.

Using the Australian Bureau of Statistics we can examine the income distribution between households. If disposable income was equally distributed between households, the bottom 20 per cent of households would have 20 per cent of total income and the top 20 per cent of households would also have 20 per cent of total income. In fact, the latest ABS figures show that the bottom fifth has just seven per cent of the income, whereas the top fifth has more than 40 per cent. And in the four years to 2010, the shares of the four bottom-fifths fell by about 0.5 a percentage point each, allowing the share of the top fifth to rise by two per cent. So why, under both Liberal and Labor governments, has there been this marked increase in inequality?

Economic writer Ross Gittins in last year's ACTU Whitlam lecture outlined this recent data and attempted to answer the question. He said:

No one can say with any certainly. Various factors could have contributed: the resources boom and the booming sharemarket before the global financial crisis, the continued rise in executive and finance-sector salaries and maybe the succession of income-tax cuts that benefited people on high incomes.

But he went on to say:

It would be a mistake to conclude, however, that all families with income sufficient to put them in the top 20 per cent have benefited equally. It’s far more likely that the closer you are to the top of that 20 per cent the better you’ve done. It’s even possible that the share of people in the second-top 10 per cent has declined, as have the shares of the bottom 80 per cent of households.

But it gets worse. According to Gittins, research using income tax statistics show that the top 120th of a per cent of individual taxpayers account for about two per cent of total taxable income. Let's just reflect on that. Someone in the top 0.05 per cent of taxpayers has income about 40 times their proportionate share. Gittins also says:

The top 10th of a per cent accounts for 3 per cent, the top half a per cent for 6 per cent, the top 1 per cent for 9 per cent, the top 5 per cent for 21 per cent and the top 10 per cent for 31 per cent

So in fact it is the growth in income of the very top group of people in the wealthiest 20 per cent of the income band that is driving this growth in inequality. According to Gittins this means:

The shares of these top earners were declining until the early 1980s, but have increased since then, with the share of the top 10 per cent growing from 25 per cent to 31 per cent. Why has this happened? I think it would have to do mainly with the explosion in executive salaries and the phenomenal expansion of the phenomenally paid financial services industry.

While experiencing a short dip post the global financial crisis, executive salaries are continuing to soar, driving up this inequality in Australia. This skyrocketing of executive pay is based on the obscene levels of incentives and bonuses for company executives and has fuelled unsustainable business practices that resulted in the loss of jobs and shareholder wealth. Let's look again at the figures.

The average total remuneration of a chief executive of a top-50 company listed on the Australian Securities Exchange in 2010 was $6.4 million. This makes the average CEO's total pay packet almost 100 times that of the average worker. This is an obscene difference in remuneration. Why should anyone earn 100 times more than the average worker? Do they work 100 times as hard? Are they carrying out work that is a hundred times more risky, or difficult or dangerous? The reality is executives are being paid this amount because they are able to get away with it and they have been allowed to get away with it.

We can get a greater sense of how unfair this difference is by looking at the increases in executive pay over last financial year. Executive pay rose by an average of almost $1 million, the equivalent of an extra $18,000 per week. Over the same period, the annual average wage for a full-time worker rose by just $3,200, or $62 a week—$18,000 a week compared with $62 dollars a week. Yet we are constantly hearing lectures about the importance of wage restraint and the worry of a wages break-out amongst working people. What does one even do with an extra $18,000 a week?

This has been a problem for some time with base pay for executives rising by 130 per cent from 2001-2010, while in the same period average weekly earnings only rose by 52 per cent. Inflation over the same period was just 28.6 per cent. Again, we see this incredible difference with average workers gaining modest increases in their pay just keeping above inflation, while the top end of town is raking it in, with a whopping doubling of their pay over the last decade.

Over the previous financial year across the economy, profits also soared by 27.5 per cent. This imbalance is even greater in selected industries. Gross operating profits in mining have risen by 60.6 per cent, while wages grew by just 3.8 per cent. Construction profits rose by 55.5 per cent, but wages by just 2.9 per cent. And profits in the information, media and telecommunications sector grew by 10 per cent—five times more than wages. Company profits as a share of national income are now back to the record levels of 2008, while the wages share is the lowest since 1964. So there has been no shortage of funds to fund wage increases for workers, but corporations have instead funded executive salaries. This is unfair and unsustainable, and it is little wonder that the community is angry when they are doing it tough and being asked to engage in wage restraint when corporate leaders are filling their own pockets.

Here are some examples from last year of incredible increases in CEO pay from 2009 to 2010. Tom Albanese, CEO of Rio Tinto, got $9,039,000, an increase of 328 per cent. Don Voelte from Woodside Petroleum is on $8,343,339—also a huge increase. Ralph Norris, CEO of the Commonwealth Bank, modest but still a nice little earner, is on $16,157,746, an increase of 75 per cent. And the list goes on: David Knox at Santos, $5 million, an increase of 63 per cent; Marius Kloppers on $11 million, and so on. Something needs to be done to rein in these fat-cat salaries and excessive profits. Something needs to be done to address this growing inequality. The Greens have been seeking action on executive remuneration for some time. We have proposed real and practical measures to limit executive pay. We have moved a number of amendments to the Corporations Act in the past to implement our proposals. The most recent was at the end of 2009 to the Corporations Amendment (Improving Accountability on Termination Payment) Bill.

The measures we have proposed include: a cap on total executive remuneration of $5 million to stop the excesses of the past decade but also to ensure that the majority of executives continue to enjoy attractive remuneration packages. The limit that we have proposed is more than 10 times the Prime Minister's salary. We have also proposed: a remuneration formula to set executive pay at 30 times the average employee's wage; a top marginal tax rate of 50 per cent for incomes over $1 million a year; and a binding shareholder vote on company remuneration policy. The policy would set minimum standards to be included in remuneration packages which would, in turn, place limits on the size of remuneration packages covering base salaries, performance and termination pay and non-cash rewards. We believe that these measures are sensible and, if implemented, would have already started to rein in excessive executive salaries.

Unfortunately, the government and the opposition have not had the courage to take strong action on this problem and support our measures. Instead, we have before us this bill today. The bill implements a number of the recommendations from the Productivity Commission's report from 2009on executive remuneration. The key measure in the bill is the two strike non-binding vote of shareholders on the remuneration report leading to a spill of the board.

The first strike will occur when a company's remuneration report receives a no vote of 25 per cent or more. When this occurs, the company's subsequent remuneration report, the next year, must include an explanation of the board's proposed actions in response to the no vote or an explanation of why no action has been taken.

The second strike occurs when a company's subsequent remuneration report receives a no vote of 25 per cent or more. When this occurs, shareholders will vote at the same AGM to determine whether the directors will need to stand for re-election. If this spill resolution passes with 50 per cent or more of eligible votes cast, then the spill meeting will take place within 90 days.

While this is a step forward from where we are now, the Greens would prefer a binding vote of shareholders on remuneration policy which would set limits and give the shareholders that ability to configure payments in accordance with common sense. Under the provisions in the bill the potential for a spill of the board takes two votes at subsequent annual general meetings of shareholders expressing their concern with the remuneration of executives. There is, therefore, a significant amount of time between shareholders expressing displeasure and being in a position to act. During this time CEOs can continue to be paid obscene salaries.

We understand the arguments put by the Productivity Commission against a binding vote, including that a binding vote would provide significant practical difficulties such as companies not being able to finalise a contract with an executive until shareholder approval was obtained, and could result in a deadlock arising between shareholders and the board regarding the appropriate levels of executive remuneration. We appreciate that the government's position is to encourage cultural change in large corporations regarding executive remuneration. However, we continue to hold reservations that these measures will in practical terms work to stop the excessive salaries that I have outlined today. We will be watching carefully how this process works in practice and the extent to which it does create cultural change and rein in executive remuneration packages.

The Greens support the other measures in the bill to increase transparency with regard to executive remuneration. These include: increasing transparency and accountability with respect to the use of remuneration consultants, in particular, that remuneration consultants report to non-executive directors or the remuneration committee; addressing conflicts of interests that exist with directors and executives voting their shares on remuneration resolutions. We agree that directors and executives with voting shares should not be allowed to vote on the remuneration reports. We also support: ensuring that remuneration remains linked to performance by prohibiting hedging of incentive remuneration; requiring shareholder approval for declarations of no vacancy at an annual general meeting; prohibiting proxy holders from cherry-picking the proxies they exercise by requiring that any directed proxies that are not voted default to the chair, who is required to vote the proxies as directed; and reducing the complexity of the remuneration report by confining disclosures in the report to the key management personnel.

These measures also go to implementing some of the principles of executive remuneration agreed to by the G20 in September 2009. They will improve the way companies go about determining remuneration for executives, and the increased transparency of these measures is to be welcomed. However, this must be just the first step. Unless we move to serious caps and stronger regulation of executive salaries we will not begin to address the growing inequality we are experiencing in this country.

Amanda Rishworth (Kingston, Australian Labor Party) Share this | Link to this | Hansard source

I rise to support the Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Bill 2011. The global financial crisis around the world put a spotlight on and exposed some of the excessive remuneration packages of company directors and executives.

In Australia in the last 30 years the relativities between the average wage and executive pay have grown exponentially. In fact, CEO salaries of Australia's largest 300 listed companies rose by 28 per cent in 2006-07. This is compared to the average full-time income growth of 3.4 per cent over the same period. So there is a significant difference between the rise in CEO salaries and income growth. The community in Australia has registered its concern about this increase in disparity between the average wage income earner and the rise in CEO salaries.

In the financial year just passed, companies on the S&P ASX 100 that filed remuneration reports revealed an average executive salary rise of 12 per cent with the highest being 93 per cent. These pay rises have all occurred despite difficult times and under difficult conditions, with CEOs, at the same time, calling for wage constraint for ordinary workers. It is important that the community is listened to when it comes to executive remuneration and that steps are taken to ensure that these salaries do get recognised. We need to ensure that regulation is made to make sure that they are fair and right and that shareholders get their voices listened to. I am also certain that members of the House will recall the exposure of unreasonable termination benefits being afforded to departing directors of companies not long after the global financial crisis. The government addressed this issue in its 2009 announcement of reforms aimed at curbing these excessive golden handshake payments. The bill before the House seeks to build on those reforms by further strengthening Australia's remuneration framework. It is disappointing that while the opposition state that they agree with the government their amendments effectively aim to keep the status quo. I do hope that the opposition comes to their senses, listen to community expectations and support the bill before the House.

The bill will amend current limitations in order to provide shareholders with more control over the pay of directors. Shareholders are the legal owners of a company in which they invest. In doing so, they take ownership of the company's risk and also share in the company's profit and loss. Shareholders therefore deserve more control over how the pay of company executives is decided. This bill seeks to empower shareholders to influence their company's remuneration decisions by, firstly, introducing a two-strikes test.

The current Corporations Act requires listed companies to put their remuneration report to a non-binding shareholder vote at an annual general meeting. However, shareholders have no means of recourse should they implement a strong 'no' vote which is then ignored by the company board. Under the bill before the House, the first strike will be initiated in the instance where a company's remuneration report receives a 'no' vote of 25 per cent or more. This results in the company being required to provide direct evidence of the shareholders' concerns having been addressed or an outline as to why they have not. If shareholders remain dissatisfied and another vote results in a 'no' vote of 25 per cent or more then the second strike is triggered. The second strike gives shareholders the opportunity to vote on a resolution to spill the board and subject directors to re-election. If the spill resolution is passed by more than 50 per cent then a spill meeting will provide shareholders with the opportunity to vote on the re-election of each director. The two-strikes test is an important measure that finally holds unresponsive directors accountable for the decisions they make on executive remuneration.

This bill also seeks to ensure that consultation between remuneration consultants and company executives remains transparent. A company's remuneration consultant will be required to declare that their recommendations are free from undue influence. As a means of ensuring further transparency, these recommendations will be provided to non-executive directors or the remuneration committee, rather than to the company's executive directors. The company will also be required to disclose details regarding the consultant used and the amount they were paid. These measures are focused on ensuring accountability and transparency within the remuneration framework. Shareholders have a right to be in a position to assess any potential conflict of interest, and this bill takes important steps towards ensuring that this remains the case.

As a means of further reducing conflicts of interest, this bill also prohibits company directors and executives from voting on the remuneration report or the spill resolution. Directors and executives no doubt have an interest in approving their own remuneration agreements. Doing so affords them a considerable amount of power concerning their company's remuneration framework. This clearly represents a conflict of interest, and the measures proposed in this bill seek to remove that conflict.

In line with the government's reforms to termination benefits, this bill also seeks to ensure that executive remuneration remains linked to performance. Incentive remuneration is designed to align directors' and executives' interests with those of shareholders; however, the hedging of incentive payments can severely skew this relationship. Directors and executives are currently able to hedge their exposure to incentive remuneration by entering into third-party contracts and effectively mitigating their personal financial interest in their company's success. The use of hedging is completely inconsistent with the values of Australia's remuneration framework. However, perhaps more concerning is the real, as well as the perceived, conflict of interest that arises when a director or executive enters into hedging arrangements. Such an arrangement may stand to see the director or executive benefit from a fall in their company's share price. Hedging by directors or executives distorts their responsibilities to their shareholders. The measures in this bill will ensure that the interests of shareholders and of the company's directors and executives remain synchronised.

The bill also introduces a measure that prevents boards from announcing 'no vacancy' without the approval of its shareholders. This is an important step towards transferring company decision-making power back to shareholders. The no vacancy rule currently allows boards to govern the composition of the board and makes it difficult, if not impossible, for non-board-endorsed candidates to be elected. This promotes unaccountability from directors and executives and leaves shareholders without a voice, given that any candidate seeking to promote change within a company can essentially be prevented from reaching a board position that would allow them to instigate such change.

The bill also introduces an amendment which will ensure the enfranchisement of every shareholder who chooses to vote at an annual general meeting. Currently, all directors except for the chair have the ability to disregard proxy votes that do not align with their personal views regarding a resolution. Indeed, annual general meetings can be held at times or locations that are not convenient for all shareholders. As such, many shareholders who are unable to attend in person are able to indicate their position by a proxy vote. These votes should be given just as much weighting as a vote from a shareholder present at the meeting. However, instead, these votes can currently be disregarded at a director's discretion. This cherry picking of votes from shareholders who have made specific declarations concerning their vote inevitably results in outcomes that by no means clearly represent the sentiment of shareholders. This bill will ensure that the outcome of a resolution vote reflects shareholder views rather than the cherry picked views of directors. In conclusion, under request from the government, the Productivity Commission undertook a broad review of Australia's remuneration framework. The nine-month review process, which included a total of 170 submissions and a series of public hearings, revealed that Australia's corporate governance and remuneration framework are ranked highly on an international scale. However, it also recommended a range of reforms to further strengthen Australia's remuneration framework.

The bill before the House today effectively responds to these recommendations. It will provide shareholders with a new level of power and ultimately improve the transparency and accountability of company directors and executives. It addresses the conflicts of interest that arise throughout the remuneration process and ensures that the sentiments of shareholders are appropriately represented by directors and executives.

While Australia's remuneration framework is certainly strong, these innovative reforms will eliminate complacency and ensure that it remains effective well into the future. It will better reflect community standards when it comes to remuneration and pay of company executives, and I therefore commend the bill to the House.

Tony Zappia (Makin, Australian Labor Party) Share this | Link to this | Hansard source

I welcome the opportunity to speak on Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Bill 2011, and I commend the member for Kingston for the remarks she has just made on the bill in this place.

In recent years public anger about excessive salaries and executive payouts has been widespread. Whilst the spotlight has been taken off executive salaries in recent times there is little, if any, justification for some of the remuneration we are still seeing. Nor is this issue just a matter for company shareholders. It is a matter that the wider community has a right to take an interest in, because in most cases the remuneration packages for senior executives have direct implications for the broader community. That is why this is a public interest issue, and why those people who argue that private sector remuneration is a matter for the private sector and not the business of government are wrong. It is the argument about why this is a matter of public interest that I will address in my remarks on this bill.

Possibly every senior management appointment today is tied to performance, either by way of a performance bonus or simply because renewal of the employment contract is directly tied to performance. In the private sector the most used measure of performance and certainly the most persuasive is the annual profit or loss statement. Generally, the higher the profits the better the performance is considered. That is what most company owners and shareholders are driven by. Profit can be and usually is made from a range of actions, but when any of those actions are extreme or irresponsible it is the public that inevitably ends up paying one way or another. And therein lies the public interest test—a test that could be applied time and again, using many examples in numerous industry sectors over recent years.

We have seen farmers being squeezed by monopoly retailers, manufacturers transferring their operations overseas, high-risk loan arrangements or investment schemes, construction shortcuts where safety standards are not complied with, transport industry drivers placed under unreasonable delivery deadlines, and collusion or similar practices and possibly corruption creeping into industry practices. Cutting costs and increasing sales are strategies almost universally implemented in business to increase profits—and I will speak more about both these matters. Cutting costs and reducing overheads can be achieved by investing in modernisation strategies, upskilling the workforce, streamlining production and other forward-thinking responsible strategies. The alternatives are reducing labour costs, not complying with regulatory standards, using inferior componentry, taking extreme risks and other irresponsible measures—all of which appear to have become commonplace in business.

I turn now to labour costs. Labour costs are frequently cut by placing unreasonable demands on workers, including longer working hours, which are often unpaid; by reducing the workforce numbers and working employees harder; by paying workers less than fair wages; by subcontracting work out; and by taking work offshore. It is all about squeezing more out of the labour force. The social costs of unemployment, housing, health and family breakdown, which inevitably follow when operations are transferred offshore, workers are placed under unreasonable work pressure, or work is subcontracted out so employers are no longer responsible for work conditions are all examples of where the consequences are inevitably paid for by the rest of society.

We saw the collapse of the financial system because of high-risk lending practices or high-risk investment schemes. This was driven by executives who were in turn motivated by increased profits. Hardworking people lost their homes, their health, their savings and sometimes their lives because of the decisions of highly remunerated executives. In the five years prior to the 2008 global financial crisis, senior executives of the five largest financial institutions in Wall Street were paid $3.6 billion in remuneration. They profited whilst others lost everything. They were rewarded for their failure.

I turn now to the transport sector. Each year around 300 lives are lost and about 5,500 are injured because of cost-cutting in the transport sector. I quote from a submission from the Transport Workers Union from February this year on this very matter:

Each road death costs $1.7 million. Each injury in an incident costs $408 000. When the non-monetised social impact of road deaths, injuries and illness, family breakdown, pain and suffering is included in the measurement of what road deaths and injuries cost the community—

The damages bill is immeasurable. The report attributes the cause of the road transport safety crisis to economic factors; namely, the low level of driver remuneration and their methods of payment. As made clear in the NTC report, the high level of control exercised by clients over price, timing, destination and route causes operators to bear the costs that, ordinarily, are borne by customers. Denied a proper return, let alone a margin that exceeds the cost of capital, operators undercut each other, bid the price of transport down and attempt to recoup the losses caused by clients from drivers by not paying them for all work performed and by paying them through incentive rates. It says:

Because employment is too often conditional on strict compliance with an operator's direction and client deadlines, drivers are prone to drive while fatigued, to speed, to take drugs and to skimp on maintenance.

All of that arises because someone is trying to make a profit. Usually the CEO or an executive is the person driving that to the point that they do.

Mining and construction workers' lives have been put at risk and lives lost or injured because of work practices imposed by employers. The recent spate of mining tragedies exposes some of these practices. In the building and construction sector, each year around 50 lives are lost and around 75,000 workers are injured through accidents, which in most cases are foreseeable and avoidable and which can be attributed to cost cutting. Yet people like Ark Tribe were taken to court for standing up for their right to a safe work environment.

In food production, farm producers are squeezed for lower prices by the major grocery retailers in turn placing hardship and stress on farming families. The current milk price war has been linked to the executive remuneration of the Coles CEO with allegations that the Coles CEO will be paid millions of dollars if he increases the Coles profit. Discounting milk is a strategy currently being employed by Coles to increase market share of grocery sales and ultimately the Coles profit. The Australian dairy farmers say the discounted milk is already reducing the income of dairy farmers and threatens their ongoing viability. This is a claim that Coles is disputing of course. We have also seen farm products being sourced from overseas where production standards do not meet Australian standards, which in turn leads to health impacts on Australian consumers and a demise of Australian food production. Again these are decisions made by executives whose primary interest is profit. The impact on Australian farmers and the health impacts on Australian consumers are ultimately borne by governments.

Another of the very concerning trends in recent times has been the use of overseas registered shipping and crews. We have now had several cases of extensive environmental disasters that have been attributed to cost-cutting decisions made by executives who are driven by profit. The environmental disaster on the Great Barrier Reef when a Chinese coal carrier ran aground, spilling about four tonnes of heavy fuel oil from a perforated fuel tank, has been attributed to a seaman being fatigued, having managed only 2½ hours of sleep in the previous 38½ hours. In February this year there was another shipping incident. It was associated with the multi-cat vessel Boskalis BKM 102 whilst working on the Gorgon project off Barrow Island. The four MUA crew members were put at risk and the pristine environment was badly polluted, because of the shoddy practices of the overseas shipping company. In addition, there was the Montara oil spill, which occurred in the Timor Sea on 21 August 2009 and continued right up until November 2009. I understand that Indonesia and East Timor are now seeking compensation for the extensive environmental damage done. Even if they are successful as to compensation and even if penalties are imposed, the reality is that the bulk of the environmental damage cost inevitably will fall onto governments and society.

The measures in this bill provide increased accountability by CEOs to shareholders and conversely give shareholders more control over executive remuneration, and they will be welcomed by many Australians. It is my view that most shareholders do not endorse the kinds of practices that I have alluded to in my remarks. It is my view that most shareholders want to see their executives acting responsibly. Time will enable us to determine whether the measures in this bill are sufficient to ensure the right level of accountability by CEOs. It is my view that many CEOs are still grossly overremunerated and I would consider supporting additional measures that I believe could be taken to curb excessive CEO remuneration packages. I note the comments of members opposite and I understand that they intend moving an amendment. I also note comments they believe that essentially the government should not meddle in private enterprise. These comments were made by a number of these speakers. I reject that proposition. I believe that this legislation is a step in the right direction, and I commend it to the House.

Debate adjourned.