House of Representatives

Explanatory Memorandum

Circulated by the Authority of the Parliamentary Secretary to the Treasurer, the Hon David Bradbury MP

General outline and financial impact

General outline

The Bill contains a range of measures to strengthen Australia's remuneration framework. It implements many of the recommendations made by the Productivity Commission (PC) in its recent inquiry into executive remuneration in Australia.

The Bill contains measures to empower shareholders to hold directors accountable for their decisions on executive remuneration, to address conflicts of interest in the remuneration setting process, and to increase transparency and accountability in executive remuneration matters.

The key measures include:

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strengthening the non-binding vote on the remuneration report, by 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;

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increasing transparency and accountability with respect to the use of remuneration consultants;

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addressing conflicts of interests that exist with directors and executives voting their shares on remuneration resolutions;

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ensuring that remuneration remains linked to performance by prohibiting hedging of incentive remuneration;

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requiring shareholder approval for declarations of 'no vacancy' at an annual general meeting (AGM);

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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

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reducing the complexity of the remuneration report by confining disclosures in the report to the key management personnel (KMP).

Date of effect : 1 July 2011.

Summary of regulation impact statement

Regulation impact on business

Impact : A Regulation Impact Statement (RIS) has been prepared in accordance with the Government's best practice regulation requirements.