Reforms are needed to improve the accountability of boards, remove conflicts of interest and enhance shareholder engagement on remuneration, according to this draft report.

On the evidence, says the Commission, the strong growth in executive pay has had much to do with the growth and global reach of Australian companies themselves. But there have also been episodes of excess and poor pay practices. The discussion draft reveals marked differences across public companies. For the top 20 CEOs, pay averages almost $10 million, or 150 times average weekly earnings, whereas CEOs' pay at the smallest 500 companies averages around $180 000.

The Commission does not consider that there is general system failure in pay-setting across Australia's 2000 listed companies. However, some pay outcomes, especially the more egregious cases of 'reward for failure', appear inconsistent with an efficient executive labour market and could reflect weak or complicit boards. Such outcomes can weaken community confidence in corporate Australia and could have adverse effects on equity markets.

The Commission is proposing a package of changes to the Corporations Act and ASX listing rules, including:

    •    barring executives from sitting on remuneration committees
    •    requiring that remuneration consultants report to boards independently of management
    •    prohibiting directors and executives voting their shares and any undirected proxies on remuneration issues.

The Commission also proposes strengthening shareholders' 'say on pay' by requiring boards to face re-election if shareholders' concerns on consecutive remuneration reports are ignored — a 'two strikes' rule.