Boards face pay spills
DIRECTORS have been put on notice over executive pay, with boards now facing a potential spill if they ignore shareholder opposition to remuneration packages.
Under the landmark ''two-strikes'' rule, passed by the Senate last night, shareholders will be able to demand a vote on whether to spill the board if more than a quarter of votes cast oppose the remuneration report at two successive annual meetings.
The change, opposed by directors but backed by shareholder groups, will transform remuneration votes from being largely symbolic affairs that boards could ignore at will.
From July 1, shareholders can use remuneration to force a vote on a spill motion, which would require majority support to force fresh board elections.
The Parliamentary Secretary to the Treasurer, David Bradbury, said the rules would boost transparency and give shareholders a greater say in how much executives were paid.
''Shareholders, as the owners of a company, take on the risk of investing their capital and share in a company's profits and losses, and the Gillard government believes they deserve more say over how the pay of company executives is set,'' Mr Bradbury said.
While the Coalition allowed the bill to pass, the Greens accused the government of not going far enough. They put forward amendments to cap executive pay at 30 times the average wage within a company, but they found little support. The Greens take the balance of power in the Senate next month.
According to the Greens, executive pay has surged by 130 per cent between 2001 and 2010, compared with a 52 per cent increase in regular wages.
The opposition had also moved amendments to make it more difficult for shareholders to trigger a board spill, by raising the threshold to 25 per cent of all shares on issue, rather than 25 per cent of votes cast.
The chief executive of the Australian Shareholders' Association, Vas Kolesnikoff, supported the change, saying it would pressure boards to listen more to shareholders.
If the new rules had been in place, Mr Kolesnikoff noted that Rio Tinto could have faced board spill votes after significant opposition to its remuneration reports at annual meetings in 2010 and 2011.
However, Mr Kolesnikoff said, spills over executive pay were more likely in smaller companies, whose stock tended to be tightly held.
''Shareholders will be looking at boards and remuneration reports more closely, and boards will have to be more responsive as shareholders seek to engage with this legislation,'' he said.
The ''two strikes'' rule was recommended by the Productivity Commission report into executive pay, begun in 2009.