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The Government has announced proposals to expand the current executive remuneration disclosures that listed companies are required to include in their Remuneration Reports, with the intent of having these amendments in place from 1 July 2013.
The Government justifies the proposals by arguing that they are “evidence-based reforms to improve accountability and transparency while preserving our international competitiveness”. However, given the current criticism that Remuneration Reports are too long and complex, only time will tell if these proposals will lead to simplification and understandability.
The main proposals are:
Disclosure of Remuneration Clawback
Listed companies will be required to disclose to shareholders through the Remuneration Report the steps they have taken to clawback bonuses and other remuneration, where a material misstatement has occurred, in relation to the company's financial statements. If the company does not clawback any remuneration, the board will be required to provide a detailed explanation to their shareholders as to why. If shareholders are unhappy with the company's actions, they will be able to use their powers under the two-strikes rule, to vote down the Remuneration Report and potentially spill the board.
Disclosure of Termination Payments
In response to the Corporations and Markets Advisory Committee’s (CAMAC) 2011 report on executive remuneration, the Government will be improving disclosures contained in Remuneration Reports, through the creation of a requirement for more transparent disclosure of termination payments or 'golden handshake' payments. Whilst, unnecessary disclosure requirements will be removed to simplify Remuneration Reports, and clearer categorization of pay will be introduced to better enable shareholders ability to understand the company's remuneration arrangements.
Other proposed reforms to the executive remuneration framework include:
- relieving certain unlisted entities from the obligation to prepare a Remuneration Report, which will significantly reduce the regulatory burden on companies that are not subject to the 'two-strikes' mechanism
- inserting disclosure requirements for related party transactions into the Corporations Regulations, as these disclosure requirements will be removed from the accounting standards from 1 July 2013
- creating a general description of the company’s remuneration governance framework
- forming a requirement for the Remuneration Report to disclose any options that have lapsed in the current financial year and indicate the year(s) in which they were granted. However, there is no obligation to include a value for the lapsed options
- eliminating the requirement to disclose the percentage of the value of remuneration that consists of options that should be repealed as this can be deduced from information already required by Corporations Regulation 2M.3.03
- disclosing all payments (including entitlement payments, severance payments and post-severance payments) for key management personnel upon their retirement from the company, regardless of whether those payments were provided under an employment contract
- suppling remuneration disclosure for key management personnel (including crystallised past pay, present pay and future pay)