Crackdown on dodgy executive payments

Company executives will have to pay back bonuses if they are based on dodgy financial figures, the Government vowed yesterday.

And shareholders will be able to force a fresh ballot for directors if they are unhappy with executive salaries for two years in a row.

The Government toughened up Productivity Commission recommendations to lift transparency of executive pay, Corporate Law Minister Chris Bowen said.

And it introduced its own plan for a “claw back” of bonuses found to have been based on “a material mis-statement of a company’s financial statement”.

An anomaly in the law prevents executives and directors being forced to give back cash paid for improved company performances when accurate figures show the improvement didn’t happen.

“The Government recognises the importance of incentives and risk-based pay in setting executive remuneration,” Mr Bowen said.

“However, complex remuneration arrangements can obscure the nexus between remuneration and performance.”

The law would be tightened to deal with “potential fraud in relation to mis-statements of
financial records and implications for bonuses”.

Sections of company reports on executive pay can be too complex for shareholders.

The Government will ask the Corporations and Market Advisory Committee’s advice on how to make salary details clearer in reports and for them to include information on bonuses.

The Government also adopted a Productivity Commission proposal for a “two strikes” process about excessive salaries.

If for two years in a row at least 25 per cent of shareholders reject a company’s executive salary structure, an AGM can be ordered by a vote of 50 per cent of shareholders to elect a new board of directors.

“I think it concentrates the minds of directors on the wishes of shareholders,” Mr Bowen said.

The Government wants to pass legislation this year so pay laws come into force from July 1, 2011.

The Opposition accused the Government yesterday of flinching from the promise to “rein in” executive pay.

“The Coalition welcomes the Government’s decision to accept 16 of the 17 recommendations made by the Productivity Commission but we note the adopted recommendations are a far cry from the Government’s position in 2008,” Opposition spokesman Luke Hartsuyker said.

“Kevin Rudd promised in October 2008 that it was ‘game over’ for executive pay because people had had just a gutful of greed.”