13 January 2010In The Age, Allan Fels explains the major recommendations of the Productivity Commission's review of executive remuneration

THE final Productivity Commission report on executive remuneration has concluded that if 25 per cent or more of shareholders at two successive annual general meetings vote negatively on the board's pay report there should be an immediate vote on whether or not the whole board should face re-election. If this is carried by a majority of those voting, at the meeting, all board positions would be up for election one by one, at a special meeting held within three months.
At present, shareholder votes on remuneration reports are not binding and have no other legal consequences.
The proposed process enables shareholders to target delinquent boards that have ignored their views. Five per cent of Australia's top-200, ASX-listed firms have had two successive no-votes in recent times and the proportion of those votes has been rising. The process will also promote better dialogue between shareholders and boards and make boards more careful in setting executive pay, a very sensitive spot in the principal/agent relationship of shareholders, boards and management...

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Allan Fels was a member of the Productivity Commission inquiry, which delivered its report into executive pay at the weekend.

Photo: Andrew Jeffrey