12–34MR ASIC calls for better executive remuneration disclosure
Wednesday 29 February 2012
ASIC has called on companies to improve the disclosure of their remuneration arrangements for directors and executives.
The call for improvement follows a review of 50 remuneration reports - drawn from 300 of Australia’s biggest companies - for the year ended 30 June 2011.
ASIC undertook a similar review last year of 60 remuneration reports (refer: 11-130AD).
‘It is important for the integrity of the market and investor confidence that there is a high level of compliance with the executive remuneration laws,’ ASIC Deputy Chairman Belinda Gibson said.
‘This year’s review showed that companies could still improve their disclosure in order to provide shareholders with a better understanding of why directors have adopted the remuneration arrangements they have.
‘Directors must provide sufficient detail on the remuneration arrangements to enable shareholders to assess the appropriateness of them in the company’s circumstances.’
The attachment to this advisory provides examples of the disclosures that some companies made which illustrate better practice.
ASIC also surveyed how listed companies have managed the new voting exclusions that prohibit key management personnel (KMP) and their closely related parties voting on the resolution to adopt the remuneration report. ASIC examined procedures adopted by 12 ASX300 companies that held their annual general meeting between 21 October 2011 and 23 November 2011.
Procedures used by some companies that others could adopt to provide the Chair of the meeting with greater confidence that only those votes that are permitted under the law have been counted, include:
requesting the KMP to advise their closely related parties of the voting prohibitions
providing members of the KMP with a pro forma letter with instructions for nominee companies or trusts on not voting their shares
seeking assurances from KMP that they will not cast votes, and
confirming that the share registry service provider, if used, has excluded the relevant votes.
On 10 November 2011 Chartered Secretaries Australia (CSA) issued guidelines to assist companies to manage voting exclusions on remuneration-related resolutions.
‘ASIC encourages directors and those supporting directors to read the CSA guidelines and put in place procedures that demonstrate to shareholders that votes at meetings are properly conducted,’ Ms Gibson said.
ASIC’s review examined 50 reports of ASX300 companies.
Under section 300A of the Corporations Act 2001 (the Corporations Act) for the year ended 30 June 2011 listed companies were required to disclose in the ‘Remuneration report’ section of the directors’ report the following information:
discussion of the board policy for remuneration
discussion of the relationship between the board policy and company performance
explanation of performance related remuneration and performance conditions
additional information where securities are an element of remuneration
additional information where options are an element of remuneration; and
additional information where a person is employed under a contract.
With effect from 1 August 2011, under section 250R(4) of the Corporations Act a member of the KMP whose remuneration details are included in the remuneration report and a closely related party of that person must not cast a vote on the resolution to adopt the remuneration report. However, that person may vote if the person does so as a proxy appointed by writing that specifies how the proxy is to vote on the resolution and the vote is not cast on behalf of another member of the KMP or a closely related party of a member of the KMP.
On 21 February 2012 the Parliamentary Secretary to the Treasurer, The Hon David Bradbury MP, announced law reform proposals (opens new window) to provide more disclosure of remuneration arrangements in annual reports. These, if implemented, will supplement the current provisions which were the subject of ASIC’s review.