Mathias Cormann (WA, Liberal Party, Shadow Assistant Treasurer) Share this | Hansard source

The coalition will not oppose the Corporations Amendment (Improving Account­ability on Director and Executive Remuneration) Bill 2011. However, we will seek to make an important amendment to it and we will raise some questions during the committee stages of the debate. While we are broadly supportive of the objective of achiev­ing 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.

This bill does implement recom­mendations of the Productivity Commission from its recent inquiry into executive remuneration in Australia which reported back on 4 January 2010. Concern around the issue of executive remuneration led to this review. The review commenced in 2009 and received 170-odd submissions. The final report was provided to the government back in December 2009.

This 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'. It changes regulation with respect to the use of remuneration consul­tants. It prohibits directors and executives voting their shares on remuneration resolu­tions. It prohibits hedging of incentive rem­uneration. It requires shareholder approval for declarations of no vacancy at an annual general meeting. It requires that any directed proxies are voted as directed. It seeks to reduce the complexity of the rem­uneration report by confining disclosures in the report to the key management personnel.

Changes to voting arrangements must, in our view, be careful not to distort the wishes of the majority of shareholders. The views of a minority of shareholders, while important, should not too easily hold hostage the majority view across company annual general meetings. 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. As currently proposed, the threshold for the two-strikes rule is 25 per cent of votes cast. This could be a very low threshold indeed. If fewer than 50 per cent of votes are cast and there are 25 per cent of that, it could be a very small number of shareholders that could lead a company to a circumstance where the board would be spilled at a subsequent AGM. Therefore, the coalition will be moving an amendment to require the threshold to be 25 per cent—but 25 per cent of the total votes available to be cast. That is still a minority across any AGM; however, it is a more representative sample and, we believe, more appropriate in the context of what is being proposed.

There are a number of other issues that we might be able to address during the com­mittee stages of the bill, but I do flag that during the committee stages the coalition will be moving a series of amendments to ensure, essentially, that the 25 per cent threshold for the two-strikes rule is applied to the votes available to be cast, not just to the votes actually cast at the AGM. We think that that is a more appropriate reflection of a sufficient proportion of shareholder votes at an AGM in relation to remuneration matters.