Clarity on voting in bill on remuneration reform
CSA had been very concerned with the consequences of the prohibition on (key management personnel (KMPs) on voting undirected proxies on remuneration-related issued and the proposals on cherry picking as they appeared in the exposure draft. We are therefore very pleased to see that our concerns have been heeded in the Corporations Amendment (Improving Accountability of Director and Executive Remuneration) Bill 2011.
Voting undirected proxies
On undirected proxies, we had noted that the vast majority of undirected proxies that are lodged, particularly by retail shareholders, appoint the chairman as their proxy. By prohibiting the chairman from voting the undirected proxies, these shareholders would have been disenfranchised. Their choice to appoint the chairman as their proxy to vote on their behalf is a vote of confidence in the chairman and the board, yet the draft legislation prevented the voting intentions of these shareholders from being realised. The bill now allows shareholders to either vote for or against the remuneration report or give their undirected proxy to the chairman, who will be able to vote in favour of it.
Given that notices of meeting already indicate how the chairman will exercise undirected proxies, shareholders wishing to appoint the chairman as their proxy have clarification as to how they will vote, and it ensures that their capacity to exercise their right to vote is not constrained. It means that shareholders can continue to express confidence in the board by appointing the chairman to vote on their behalf, even where the shareholder has not directed how the chairman is to vote; and are not disenfranchised where they are happy to allow the chairman to vote on their behalf. We pointed to the chairman’s box on proxy forms (as required under Listing Rule 14.2.3B) as the model for this — the shareholder gives their informed consent to the chairman to vote on their behalf.
On the issue of cherry picking, the exposure draft had bill imposed a blanket obligation on all proxy holders. CSA was on the record as being against this approach, as persons may be unwittingly appointed as proxies or there may be legitimate circumstances where a person other than the chairman is unable to vote on a poll at all (for example, the person may be detained on the way to the meeting, or may need to leave the meeting before the vote is taken).
The bill picks up on our recommendation that if any directed proxies are not voted they will automatically default to the chairman, who already has a statutory obligation to vote all directed proxies. We had also been very concerned that where someone might not know that they had been appointed a proxy or be unable to vote they would have committed a criminal act under the provisions of the exposure draft. The bill now provides that a non-chairman proxy will not be liable unless they agreed to the appointment or held themselves out as being willing to act as a proxy or allowed another person to do so — the proxy who votes but did not vote as directed will be subject to a fine and there is no offence for a proxy who fails to vote.
Other non-voting issues
The bill requires that a company’s board or remuneration committee approve the engagement of a remuneration consultant who must report to the non-executive directors or the remuneration committee rather than senior management. This is an improvement on the exposure draft, which had required the engagement contract for remuneration consultants to be executed only by non-executive directors — a blurring of the boundaries between board and management responsibility. Unfortunately, the bill still requires the remuneration report to disclose a range of information, including:
- the name of the consultant
- a statement that the consultant made such a recommendation
- if the consultant provided any other kind of advice to the company or entity for the financial year, a statement that the consultant provided that other kind or those other kinds of advice
- the amount and nature of the consideration payable for the remuneration recommendation
- the amount and nature of the consideration payable for any other kind of advice referred to above. This disclosure obligation may be satisfied by disclosing the aggregate consideration paid to the named remuneration consultant for each other category of advice, such as tax advice, legal advice, and accounting services
- information about the arrangements the company made to ensure that the making of the remuneration recommendation would be free from undue influence by the KMP to whom the recommendation relates
- a statement about whether the board is satisfied that the remuneration recommendation was made free from undue influence by the KMP to whom the recommendation relates
- if the board is satisfied that the remuneration recommendation was made free from undue influence by the KMP to whom the recommendation relates, the board’s reasons for being satisfied with this.
CSA had recommended that the requirement for disclosure in the remuneration report be that boards disclose the names of the remuneration consultants, whether they were appointed by the remuneration committee and/or the board and the types of services they provide to the company and we are disappointed that this was not accepted.
Prohibition on hedging
We are pleased to see that the bill recognises that it is only unvested equity remuneration or equity remuneration subject to holding locks that should be prohibited (the exposure draft had included vested remuneration).