Nick Sherry (Tasmania, Australian Labor Party, Minister Assisting the Minister for Tourism) Share this | Hansard source

On behalf of the govern­ment, this is not an unfamiliar amendment. We have had it brought to the Senate on at least three or four occasions that I can recall in dealing with these matters, though I think on this occasion we are dealing with a proposed cap from the Greens of approxi­mately $1.98 million. On previous occasions, I can recollect, it was approximately $5 million.

Shareholders take on the risk of investing capital and they share in the company's profits and losses. As the owners of a company, the government believes they do deserve more say over the remuneration of company executives. I suppose the key argument before us in dealing with this amendment and the legislation is how that is achieved. Giving shareholders a greater ability to spill the board, that is, remove them, over the remuneration of company executives, is a tough measure. It is a tough measure by any international standards that I am aware of.

But we also have to be economically responsible. Companies are important to the Australian economy and it is the role of the owners of those companies, the shareholders, to hold directors accountable on rem­uneration matters. It is not the role of government to hold the executives directly responsible; it is the role of shareholders.

The Productivity Commission reports states that a cap, as is being proposed here—and which of course was obviously a matter of consideration by the PC; it was certainly presented by a number of the submitters to the PC—

... would disadvantage some firms over others and have undesirable commercial consequences for Australian companies relative to their competitors

and that is on page xxvii, page 27.

The Productivity Commission also points out in the report:

There is no single right answer to structuring pay. Board discretion remains central to ensuring that pay structures are appropriate for each company's circumstances over time.

That is on page 189. It continues:

A salary cap would place Australia's public companies at a disadvantage against international competitors and private companies particularly in relation to hiring and retaining their executive talent.

Under the government's reforms directors will need to be able to stand in front of the shareholders and justify their decisions in relation to the pay packets of executives or face the risk of being removed from the board. The government wants to make sure that Australia has a system that rewards talent, hard work and good performance and gives shareholders the ability to have their say if they believe that an executive is being paid too highly. Importantly, the two-strikes test strengthens the non-binding vote while maintaining the fundamental principle underlying Australia's corporate governance framework that directors are responsible for, and accountable to, shareholders on all aspects of the management of the company. The Labor government will not be support­ing the amendment moved by Senator Brown on behalf of the Greens.