Search 
Mallesons Stephen Jaques
Who does this affect?

Directors, executives, remuneration committee members and their advisers.

What do you need to do?

Consider making a submission to the Productivity Commission (due by 29 May 2009). Watch for further updates and the release of the Commission’s draft report in September 2009.

Authors
Alison Lansley  
Partner

Kate Johnson  
Solicitor
Alison Lansley  
Partner
T +61 3 9643 4187

Sydney
Tim Bednall  
Andrew Gray  
Brian Murphy  

Melbourne
Murray Kellock  
Diana Nicholson  

Perth
Nigel Hunt  

Executive remuneration - tighter regulation moves a step closer - 8 April 2009

The Productivity Commission yesterday released its issues paper regarding the review into Executive Remuneration in Australia previously announced by the Rudd Government. The release of the issues paper now gives corporations and their advisers the opportunity to contribute to what will no doubt be an extensive debate on the best regulatory framework for executive remuneration in Australia.

Purpose and scope of the issues paper

The issues paper provides more detail on the key questions that the Productivity Commission will seek to address as part of its review. It also explains how it will conduct the review.

The review will examine the relationship between remuneration and corporate performance, and will consider whether current remunerations arrangements are “effective” in driving corporate performance.

The Commission has indicated its review will focus primarily on executives. In this regard, the Commission has asked for submissions on the appropriate definitions of “remuneration” and “executive”.

The Commission will also take into account the recent announcements following the recent G20 meeting (including the Financial Stability Forum’s Principles for Sound Compensation Practices released on 2 April 2009).

In relation to the five key terms of reference, the Commission has asked for submissions in relation to a number of specific questions including:

1. Trends in director and executive remuneration in Australia and internationally

  • How are levels of director and executive remuneration determined?
  • Are current director and executive remuneration levels justified?
  • What are the key drivers of performance for directors and executives?
  • What relationship exists between the structure of remuneration and individual and corporate performance?

2. The effectiveness of the existing framework for the oversight, accountability and transparency of director and executive remuneration practices

  • How effective are arrangements for director and executive remuneration under the Corporations Act and ASX listing rules and guidelines?
  • Do arrangements provide sufficient transparency and accountability on remuneration arrangements and practices?
  • Is the case for regulation stronger where government is an active participant in company activities?
  • Do conflicts of interest arise in the arrangements by which remuneration consultants advise on director and executive remuneration?

3. The role of large local institutional shareholders in the development, setting, reporting and consideration of remuneration practices

  • What degree of influence should shareholders have in their own right in determining remuneration practices?
  • Does the current non-binding vote require strengthening?
  • In what aspects of remuneration practices and setting remuneration levels would it be appropriate to increase shareholder involvement?

4. Any mechanisms that would better align the interests of boards and executives with shareholders and the wider community

  • To what extent do current taxation arrangements influence the level and structure of executive remuneration?
  • What types of performance measures/hurdles could be used to accurately measure performance and align interests of executives and shareholders?
  • Are boards properly exercising their functions on behalf of shareholders?
  • If current mechanisms are not serving to align the interests of the board and executives to those of shareholders and the wider community, how could regulatory arrangements and remuneration practices better secure this?

5. The effectiveness of international responses to remuneration issues arising from the global financial crisis and their potential application domestically

  • Are there any international approaches particularly applicable to Australia?
  • Are there particular lessons for Australia from international approaches and experience - both successes and failures?

Next steps: How to make a submission and register interest

Submissions are due by 29 May 2009. The final report will be provided to the Rudd Government on 19 December 2009, preceded by a draft report in late September.

Guidelines for the lodgement of submissions are set out in Attachment B to the issues paper:

  • There is no specified format for submissions and submissions do not need to address all questions raised by the issues paper. Where possible, the Commission would like submissions to provide evidence to support the views expressed.
  • Submissions will be placed on the Commission’s website and will be publicly available documents unless marked confidential or accompanied by a request to delay release of the information for a period.
  • Email lodgement is preferred.

Key dates

  • Submissions due: 29 May 2009
  • Initial round of public hearings start: 16 June 2009
  • Draft report: late September 2009
  • Final report: 19 December 2009.
This publication is only a general outline. It is not legal advice. You should seek professional advice before taking any action based on its contents.