The Business Council of Australia’s Chairmen’s Panel said today it had serious concerns with a proposal for a non-binding vote by shareholders on remuneration of senior company managers.
Panel Chair and BCA President, Dr John Schubert, said while business understood the current angst over executive pay, particularly around disclosure and termination payments, the proposal would not contribute to improved remuneration practices.
The federal government has flagged the proposal as part of its soon-to-be-released CLERP 9 package.
Dr Schubert said Australia already had among the most extensive requirements for disclosing executive remuneration in the world.
“Listed companies are already required to disclose the remuneration of board members, as well as the five top paid senior company managers, including the CEO,” Dr Schubert said.
“Shareholders also have a right to discuss and question executive pay at annual general meetings as well as a vote on the equity component of executive remuneration.
“Requiring an additional vote is an unnecessary step that potentially raises legal issues for boards that do not abide by the shareholders’ vote, even though it is supposed to be non-binding.”
Dr Schubert said that a board’s decision to go against a shareholder vote, even though it is meant to be non-binding, might be used as evidence in subsequent legal proceedings to suggest that directors had not fulfilled their duties.
Dr Schubert said such a proposal raised fundamental questions about the role of boards and their relationship with shareholders.
“The concept of a publicly-listed company involves shareholders delegating authority for the management of their investment to a board,” he said.
“Therefore, it is appropriate that, as is already the case, shareholders decide by voting on the remuneration and appointment of the board of directors.
“However, it is the role of the board, on behalf of shareholders, to determine the remuneration of executive managers.
“By far the vast majority of boards use sound and established principles and benchmarks to determine an appropriate remuneration package, bearing in mind that the pool of senior managers with the track-record and talent to manage a large company is relatively small and in high demand.
“A vote on executive pay, whether binding or non-binding, also raises the broader question of where such voting by shareholders should stop – in other words, whether boards should be required to seek shareholder approval on other issues associated with the direction and management of a company.
“Voting by shareholders on management issues questions the whole basis on which the listed company structure is based.”
Dr Schubert said while similarities and comparisons were being drawn between a proposed shareholder vote for senior managers of Australian companies and requirements which recently came into effect in the United Kingdom, the Australian proposal goes beyond the UK requirements.
In particular, in the UK, only directors’ remuneration is put to the vote.
This covers executives who sit on the board, but not other members of senior management, as seems to be proposed for Australia.
BCA Chairmen’s Panel
The BCA Chairmen’s Panel consists of some of Australia’s most eminent business leaders. Its role is to support the work of the BCA on public policy issues, with a particular focus on issues of importance to the Boards of major Australian corporations. The members of the BCA Chairmen’s Panel are:
Dr John Schubert, Chair
Mr Don Argus AO
Mr David Gonski AO
Ms Margaret Jackson AC
Mr Graham Kraehe AO
Ms Catherine Livingstone
Ms Helen Lynch AM
Mr Maurice Newman AC
Mr John Ralph AC
Mr Dick Warburton