Exposure of Corporations Legislation Amendment
(Remuneration and Other Measures) Bill 2012
The Parliamentary Secretary to the Treasurer, Bernie Ripoll, today released for consultation exposure draft legislation and explanatory material to continue improvements to the disclosure of executive remuneration and further clarify the test for payment of dividends.
In 2010, the Government introduced measures to give shareholders more power over the pay of company directors and executives. These reforms have proven to be very effective in strengthening the accountability and transparency of Australia's executive remuneration framework.
"This legislation will further strengthen Australia's remuneration disclosures while also reducing the regulatory burden on companies," said Mr Ripoll.
"This next tranche of reforms was first announced by my predecessor, David Bradbury, on 21 February 2012. It has been developed after extensive consultation on a proposal for 'claw-back' and will implement several recommendations made by the Corporations and Markets Advisory Committee.
"This reform builds on the additional powers we have provided to shareholders to have a say over the level and composition of executive pay."
In addition, this legislation clarifies the operation of the dividends test under the Corporations Act in response to feedback on the discussion paper Proposed Amendments to the Corporations Act. In particular, the Government has sought to address stakeholder concerns by incorporating a solvency-based dividends test.
The proposed reforms include:
- requiring listed companies who become aware in the financial year that their financial statements in any of their three previous financial years have been materially misstated, to disclose in the remuneration report, whether any overpaid remuneration has been 'clawed back', and if not, an explanation of why. Shareholders who are not satisfied with a company's claw-back policy can take action through the 'two-strikes' mechanism introduced by the Government last year;
- improving disclosures contained in remuneration reports, by requiring more transparent disclosure of termination payments or 'golden handshake' payments. Unnecessary disclosure requirements will be removed to simplify remuneration reports and clearer categorisation of pay will be introduced to better enable shareholders to understand the company's remuneration arrangements;
- relieving certain unlisted entities from the obligation to prepare a remuneration report, which will significantly reduce the regulatory burden on companies that are not subject to the 'two-strikes' mechanism;
- amending the payment of dividends test to allow companies to either declare or pay a dividend, link the dividends test more strongly with company solvency, and allow certain entities to calculate assets and liabilities with reference to financial records when applying the dividends test;
- relieving some public companies, such as certain companies limited by guarantee, from the obligation to appoint auditors, as they are no longer required to have financial reports audited; and
- transferring the remuneration setting responsibility for the offices of the Financial Reporting Council (FRC), Australian Accounting Standards Board (AASB), and the Auditing and Assurance Standards Board (AUASB) to the Remuneration Tribunal.
"Concerns about executive pay have prompted action in other jurisdictions recently, such as the United Kingdom, where the Government recently announced comprehensive reforms to their remuneration framework," said Mr Ripoll.
"I am looking forward to meeting with my UK ministerial counterparts to discuss their executive pay reforms when I lead an Australian parliamentary delegation to London next week."
The Government encourages comment and feedback on the exposure draft legislation as part of the consultation process and invites interested stakeholders to provide their input.
The draft regulations and explanatory material can be found on the Treasury website. Submissions on the exposure draft close on 15 March 2013.
14 December 2012