Explanatory Memorandum
(Circulated by the authority of the Treasurer, the Hon J. B. Hockey MP)Chapter 2 - Improving remuneration reporting
Outline of chapter
2.1 Items 3 to 5 and 10 of Schedule 1 to this Bill amend the Corporations Act 2001 (Corporations Act) to improve and streamline remuneration reporting requirements.
2.2 All references in this Chapter are to the Corporations Act unless otherwise specified.
Context of amendments
2.3 The remuneration of company directors and executives is an issue which has attracted considerable interest from shareholders, business groups and the wider community.
2.4 It is important that there is a robust regulatory framework that promotes transparency and accountability of remuneration practices and that reporting of remuneration provides relevant information to stakeholders.
Options
2.5 Subparagraph 300A(1)(e)(iv) currently requires disclosure of the value of options that were held by members of key management personnel but lapsed during the reporting year because a condition required for the options to vest was not satisfied. Subparagraph 300A(1)(e)(vi) requires disclosure of the percentage of the value of the person's remuneration that consists of options.
2.6 Users of remuneration reports have indicated that the disclosure of the value of lapsed options was of limited use. In addition, the information on the percentage of a person's remuneration that consists of options can already be calculated from the information required under Item 15, sub-regulation 2M.3.03(1) of the Corporations Regulations 2001 (Corporations Regulations), which requires the disclosure of the number and value of options that have been granted, and the number of options that have vested, during the reporting period.
Unlisted disclosing entities
2.7 The current requirement for producing remuneration reports extends to unlisted disclosing entities that are companies due to the operation of subsection 300A(2).
2.8 The preparation of a remuneration report is less relevant for unlisted disclosing entities as only listed entities are required to have their remuneration report adopted by shareholders through a non-binding resolution and are subject to the 'two-strikes' test.
Summary of new law
2.9 Listed entities are required to disclose the number of options granted to key management personnel as part of their remuneration that lapse during the financial year, and the financial year in which the lapsed options were granted.
2.10 Listed entities are no longer required to report the value of lapsed options and the percentage of the value of remuneration consisting of options.
2.11 Unlisted disclosing entities are no longer required to prepare a remuneration report.
Comparison of key features of new law and current law
| New law | Current law |
| Listed disclosing entities that are companies must disclose the number of options that lapse during a financial year and the financial year in which those options were granted, for each member of the key management personnel. There is no obligation to disclose the value of options that lapse.
There is no obligation to disclose the percentage value of remuneration that consists of options for each member of the key management personnel. |
Disclosing entities that are companies must disclose the value of options that lapse during a financial year for each member of the key management personnel.
Disclosing entities that are companies must also disclose the percentage value of remuneration that consists of options for each member of the key management personnel. |
| Unlisted disclosing entities that are companies are no longer required to prepare a remuneration report. Listed disclosing entities continue to be required to prepare a remuneration report. | All disclosing entities that are companies are required to prepare a remuneration report, regardless of whether they are listed or unlisted. |
Detailed explanation of new law
Options
2.12 Subparagraph 300A(1)(e)(iv) is repealed, removing the requirement to disclose the value of options that were held by each member of the key management personnel which lapsed during the financial year because a condition required for the options to vest was not satisfied. This obligation is replaced with a requirement for listed disclosing entities that are companies to disclose the number of lapsed options and the financial year in which the lapsed options were granted. [Schedule 1, item 3, subparagraph 300A(1)(e)(iv)]
2.13 Subparagraph 300A(1)(e)(vi) is repealed, removing the requirement to disclose the percentage of the value of remuneration that consists of options. [Schedule 1, item 4, subparagraph 300A(1)(e)(vi)]
Unlisted disclosing entities
2.14 Subsection 300A(2) is amended to replace 'disclosing entity' with 'listed disclosing entity'. This relieves unlisted disclosing entities that are companies from the obligation to prepare remuneration reports. The requirement to prepare remuneration reports is consequently imposed only on listed disclosing entities that are companies. [Schedule 1, item 5, subsection 300A(2)]
Application and transitional provisions
2.15 The changes to remuneration reporting in this Bill relieve companies of a number of disclosure obligations. These amendments apply in relation to directors' reports for financial years ending on or after the commencement of this Bill. This allows companies to access these changes as soon as practicable. [Schedule 1, item 10, sections 1547 and 1549]