The Productivity Commission has just released a Discussion Draft on Executive Remuneration in Australia, borne out of its public inquiry into the regulatory framework around remuneration of directors and executives of companies. This inquiry is one of the local reactions to worldwide calls for curbs on “episodes of excess and poor pay practices” for executives, viewed by many as one of the main culprits of the GFC.
Rather than imposing salary caps on executives, which would have harmful economic impacts (let alone add to the challenge of attracting senior leaders on an increasingly global stage!), the Productivity Commission is proposing reforms to “improve the accountability of boards, remove conflicts of interest and enhance shareholder engagement on remuneration”. Specific regulatory and corporate governance measures would include:
- Barring executives from sitting on remuneration committees
- Requiring that remuneration consultants report to boards independently of management
- Prohibiting directors and executives voting on their shares and any undirected proxies on remuneration issues
There is also a proposed ‘two strikes’ policy for Boards, where “all Board members (other than executives) should face re-election if two consecutive remuneration reports receive ‘no’ votes above specified thresholds”. Given that the majority of Boards do try to structure executive salary packages to align with strategic objectives and company performance, and that there is a need to widen the pool of talent on Boards, the practicality of this ‘two strikes’ policy needs to be worked through to ensure Boards aren’t spilled unnecessarily.
It will be interesting to see how these proposals align with other groups’ take on executive and Director remuneration, such as the Australian Prudential Regulation Authority (APRA) and the G20′s Financial Stability Board. Six Figures will be keeping a watching brief on this hot topic for Directors and Senior Executives as more proposals and regulation unfold.
The productivity Commission is inviting submissions and holding public hearings on this Discussion Draft on Executive Remuneration in late October – November, with the final report due to the Government by 19 December 2009.
