Remuneration report resolutions - An overview

One of the changes introduced as part of the then Howard Government's corporate law reforms, commonly known as CLERP 9, was the introduction of a non-binding resolution on executive remuneration to be put forward to shareholders at each year's AGM. The new rules regarding executive remuneration, similar to ones previously introduced in the UK in 2002 and soon to be introduced into the US by the Obama Administration, came into effect in mid-2004, affecting AGMs from mid-2005 onwards.

The non-binding nature of the resolutions was both important and key to their success. As these reports present what has already happened and not a proposal for future executive pay, it is not feasible to allow shareholders a binding vote (as has been suggested by opposition leader Malcolm Turnbull). Nor does voting it down actually put forward any alternative proposals. But what it does do is act as a measure of shareholder approval, and means that even a strong minority vote against it can send a strong signal to the board.

It also appears that shareholders have not abused the resolutions. In the 5 years since it was implemented, only 7 times has a remuneration report failed to receive a 50% for vote. These companies were: Novogen, Telstra, AGL, Valad Property Group, Transurban, Boral and Wesfarmers. Over the next week or two I'm hoping to take a closer look at each of these individual cases.

For some extra reading on the issue, take a look at "The biggest votes against remuneration reports" by the Mayne Report and "Calls for Canberra to rein in executive pay packets" by the 7.30 Report.