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IN BRIEF - Executive Remuneration & Employee Share Schemes

​The Federal Government's proposed legislation capping termination payments for directors and executives at 1x base salary has been passed by the House of Representatives and recommended by the Senate Economic Committee with only one change. The Bill is being debated in the Senate this week, and could become law within days. 

The Bill will have a material impact on remuneration structures for a broad range of executives, which is likely to be inconsistent with APRA's recommendations for greater performance- and risk-based remuneration.  The Bill is also likely to have unfortunate and inconsistent impacts on existing employment contracts (even with prior shareholder approval), superannuation payments, restraints of trade, and damages settlements. 

APRA has announced a second round of consultation on remuneration principles for regulated financial sector companies, with  submissions due by 2 October and new standards to be issued in November, effective from 1 April 2010.

Meanwhile, the Productivity Commission is considering whether to give shareholders of public companies a greater say on executive remuneration than is presently the case with non-binding votes on the annual remuneration report. The Commission's draft report is due out later this month.

There have also been further developments on amendments to the Government's unpopular taxation reforms of Employee Share Schemes (ESS), announced in the Federal Budget.

The Government released an exposure draft Bill last month seeking submissions until 31 August on proposed amendments in a range of areas, including the deferred taxing point for shares and rights, salary sacrifice based tax deferral and restrictions on the ability to obtain a refund for out-of-the-money options.

The Senate Economics Committee has reviewed the Bill and recommended that it be deferred until after the Productivity Commission review of executive remuneration, the Henry Tax review, and a Board of Taxation review have been completed later this year. (The Board of Taxation recently announced a review of aspects of employee share schemes and called for submissions by 9 October.) 

For more detailed analysis of ESS, see Mallesons publications here.




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Key developments in financial sector regulation


Future regulation of securitisation markets - IOSCO report handed down

The International Organisation of Securities Commissions (IOSCO) recently released the Final Report of the Task Force on Unregulated Markets and Financial Products (TFUMP), following a Consultation Report in May. The Final Report gives Australia a clear mandate to implement changes in a way which recognises the particular features of market practice in Australia. Read more

Important role for CDS market recognised by IOSCO report

The recent Final Report of the International Organisation of Securities Commissions (IOSCO) Technical Committee in respect of the Task Force on Unregulated Markets and Financial Products (TFUMP) makes for encouraging reading at a time when it can be very difficult to find a positive word said about the CDS market. Read more

Proposed US derivatives legislation is not so novel… to an Australian

The US Treasury Department has delivered draft legislative language to Capitol Hill with proposals on regulating the “over-the-counter” (OTC) derivatives industry in the United States. These proposals have attracted significant comment in the US, not in the least because of their breadth and apparent novelty. However, all but one of the fundamental principles of these new US regulatory proposals are unlikely to surprise market participants already familiar with derivatives regulation in Australia. Read more

ASIC's new role sensible, but beware a regulatory straitjacket

The move of market trading supervision from the ASX to ASIC makes a good deal of sense but if the change is to realise its potential benefits for our financial system, then the Government and ASIC will need to keep the end game in sight. Read more

Personal Property Securities - be prepared or risk losing out

Personal Property Securities reform, set for introduction in May 2011, will be one of the most important legislative reforms to affect the financial services industry for decades. Major changes will be required in the systems, processes, policies, procedures and documentation of financial institutions and others. Read more

Consumer credit protection - a process in need of reform

The first phase of the national consumer credit protection reform process is nearing completion, with the National Consumer Credit Protection Bill through the House of Representatives and introduced into the Senate on 7 September.

The process has been notable not only for the major change it represents to the regulation of credit in Australia but for the lack of broad-based consultation and the haste with which the Bill was drafted. Read more

United Kingdom Office of Fair Trading Discussion Paper on wider use of director disqualification orders in competition law cases

On 18 August 2009, the United Kingdom Office of Fair Trading (OFT) released proposed changes to its guidance on director disqualification orders in competition law cases. Currently, a company director can be disqualified from acting as a director for up to 15 years if their company is involved in a contravention of competition law and a Court finds they are unfit to be involved in the management of a company as a result. Read more