Board & executive remuneration - the 2 strikes rule

Investment commentators, stockholders and corporate governance professionals are probably more familiar with Australia's two strikes rule relating to remuneration reports for Board members and executives than the general public. As a result of the Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Act 2011, a stock exchange listed company will be required to hold a spill vote of its Board if the remuneration report receives a 25% 'No' vote two years in a row. The remuneration report details the payments for Board members and top executives and is tabled at corporate Annual General Meetings each year and subject to a vote by shareholders.

If a remuneration report does receive a 'No' vote at two successive AGMs, the second AGM will have to vote on a spill motion for the Board itself. If the spill motion receives a simple majority, the company will, within 90 days, have to hold a general meeting to vote on whether to keep the existing directors. A managing director will not be subject to the spill motion however shareholders will be able to put forward their own nominees for consideration at that spill meeting.

Much gnashing of teeth and dire predictions of corporate instability followed from leading business identities however research from the Australian Institute of Company Directors has found it was much ado about nothing. Only 15 of 176 companies listed on the ASX 200 Index registered a vote of 25% or more. The vast majority of companies had their remuneration reports adopted by the majority of shareholders. A few notable exceptions are shown below -

Company	2011 voting % against
Austar United Communications	29.2%
Bluescope Steel	38.8%
Cabcharge Australia	40.6%
Coca Cola Amatil	29.9%
Crown Limited	55.5%
Pacific Brands	52.8%
Rio Tinto	25.6%
UGL	29.0%