A Government Response to the 

Productivity Commission Report 
on Executive Remuneration
E ti R ti
•Geoff Miller
•Australian
Australian Treasury
Treasury

14 September 2010
14 September 2010
Corporate Governance and 
Remuneration
• Importance of sound corporate governance 
p
principles
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• Role of directors and shareholders in setting 
g
remuneration

• The need for well structured remuneration 
packages
Australia’s current remuneration 
framework
• Comprehensive disclosure of pay in the 
p
remuneration report

• Non‐binding shareholder vote on 
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remuneration

• ASX Corporate Governance Council’s 
Principles and Recommendations
Principles and Recommendations
PC’s inquiry on Executive 
Remuneration
• Broad terms of reference, thorough review 
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process.
• 17 recommendations aimed at:
– iimproving board capabilities;
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– reducing conflicts of interest;
– increasing shareholder engagement;
– improving disclosure; and
improving disclosure; and
– strengthening remuneration policies.
‘Two
Two‐strikes
strikes’ proposal
proposal
Year 1: ‘no’ vote of 25% or more

Year 2: ‘no’ vote of 25% or more

‘Re‐election
Re election resolution
resolution’

Extraordinary general meeting to vote on
re‐election
re election of directors within 90 days
of directors within 90 days
Remuneration consultants
Remuneration consultants
• PC’s recommendations:
– Introduce disclosure of a company’s use of 
p y
remuneration consultants
– Require advice from remuneration consultants to 
Require advice from remuneration consultants to
be provided directly to the board or remuneration 
committee
• Government supported, and further 
strengthened, the recommendations.
h d h d i
Disclosures in the Remuneration 
Report
• PC’s recommendations:
– plain English summary of remuneration policies;
p g y p ;
– report actual levels of remuneration received;
– report total company shareholdings;
report total company shareholdings;
– establish expert panel to review framework

• Government supported the recommendations 
and referred to CAMAC
d f d
Prohibition on hedging
Prohibition on hedging
• Hedging ‘de‐links’ pay and performance

• Companies currently required to disclose 
hedging policies

• PC recommended prohibiting hedging

• Government supported, and further 
strengthened, the recommendation
Composition of remuneration 
committees
• PC recommendations:
– Amend listing rules to require ASX 300 companies 
g q p
to have a remuneration committee solely 
comprised of NED’s
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– Elevate the status of guidelines dealing with 
composition of remuneration committees
composition of remuneration committees
• The ASX and the ASX Corporate Governance 
Council have announced changes in response 
il h d h i
to the PC’s recommendations
Prohibiting participation in 
remuneration resolutions
• Conflict of interest with Key Management 
( ) g
Personnel (KMP) voting on their remuneration

• PC recommended prohibiting KMP from 
voting their shares on remuneration 
resolutions

• Government
Government supported, and further 
supported, and further
strengthened, the recommendation
‘No
No vacancy
vacancy’ rule
rule
• PC recommended shareholder approval 
where a board seeks to invoke the ‘no 
vacancy’ rule
• Government supported the recommendation 
Government supported the recommendation
whilst enabling boards to retain flexibility
• Increase in board accountability will facilitate 
effective monitoring of executive
effective monitoring of executive 
remuneration
‘Cherry
Cherry‐picking
picking’
• PC recommended requiring all proxy holders 
p
to vote all directed proxies on remuneration 
resolutions
• Government supported this recommendation 
and proposed to extend to all resolutions
and proposed to extend to all resolutions
• Improve shareholder ‘signal’ on resolutions, 
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including the non‐binding vote
Other Government initiatives
Other Government initiatives
• Reforms to termination benefits
– Shareholders empowered to reject excessive 
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termination benefits
• APRA
APRA’ss standards for the financial sector
standards for the financial sector
– Aligns remuneration with risk‐taking
• Clawback proposal
– Proposal
Proposal to 
to ‘clawback’
clawback  remuneration in the event 
remuneration in the event
of a material misstatement
Concluding remarks
Concluding remarks
• Sound corporate governance framework is 
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key to ensuring well structured remuneration

• Australia’s framework is highly ranked 
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internationally

• The PC’s recommendations will further refine 
and strengthen the remuneration framework
and strengthen the remuneration framework