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

On behalf of the govern­ment I thank those honourable senators who have taken part in the debate on the Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Bill 2011. The issues for those of us in the chamber are familiar. We have had debate on these matters in some way, shape or form, certainly I can recollect, at least four or five times over the last five or six years. It well illustrates the community interest in executive remuneration.

The government, and I on behalf of the government, believe it is important to have a remuneration framework that not only is internationally competitive but also appropriately rewards executives for the wealth they create for shareholders. While Australia's framework is relatively strong, the global financial crisis highlighted many 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.

Responding to these concerns in 2009, the government delivered reforms to empower shareholders to reject excessive termination benefits or 'golden handshake' payments. Also in 2009, the government announced it would task 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 will put in place measures that will empower shareholders to influence the remuneration decisions of their company. For example, the bill requires company boards to be responsive to shareholder concerns on remuneration issues through the introduction of a 'two-strikes' test. This will ensure greater accountability of board members if they do not adequately respond to shareholder concerns on remuneration issues over two consecutive years.

In addition, the bill facilitates the independence of remuneration consultants by introducing measures that will assist shareholders to assess the independence of the advice that remuneration consultants provide to boards and remuneration com­mittees. The bill does this by introducing requirements about who must approve the engagement of a remuneration consultant and who the remuneration consultant must report to. The bill also requires the board and the remuneration consultant to provide a declaration of his independence as well as requiring disclosure of key information such as the fees paid to the remuneration consultant.

The bill prohibits the company's directors and key executives or key management personnel and their closely related parties from voting their shares in a non-binding vote on a remuneration report. This will address the conflict of interest that arises when key management personnel vote on their own remuneration packages.

Key management personnel would also be prohibited from voting undirected proxies on a remuneration report and spill resolution, with an exception for when they are acting as chair of the meeting and the shareholder has provided their informed consent. The exception for the chair is intended to apply to the non-binding vote required under section 250R of the Corporations Act.

The bill also prohibits key management personnel from hedging their incentive remuneration. This will ensure that remuneration remains linked to performance and the interests of management remains aligned with the interests of shareholders. 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 proxy holders from cherry-picking which proxies they exercise, which will enfranchise shareholders who choose to vote by proxy. In summary, this bill will give unprecedented power to shareholders, improve the accountability of company directors on remuneration issues, address conflicts of interest that exist in the remuneration-setting process and promote a culture of responsible remuneration prac­tices. At the same time, the bill recog­nises that directors are accountable to shareholders for the level and composition of executive remuneration. As shareholders are the owners of the company, they take on the risk of investing their capital and share in the company's profits and losses and they deserve more say over how the pay of company executives is set. I commend the bill to the Senate.

Question agreed to.

Bill read a second time.