Rules on bonuses ignored

By Annabel Hepworth, Damon Kitney    

The majority of sharemarket-listed companies are failing to fully disclose the performance hurdles to trigger senior executive bonuses, a high-powered coalition of superannuation funds says.

Although the Corporations Act requires companies to provide a “detailed summary” of the performance conditions for short-term incentives, the Australian Council of Superannuation Investors says that “a significant number” of companies are not doing so.

ACSI says its recent research found that just 21 per cent of the remuneration reports prepared by the top 50 companies met the requirement, leaving investors with almost no idea as to why the short-term rewards were given to executives.

The group warns that this could also jeopardise federal government proposals to claw back executive bonuses where the financial statements were materially misstated.

“It is virtually impossible to assess an ‘overpaid bonus amount’, as it cannot be determined what proportion of (short-term) bonus outcomes were contingent on performance outcomes linked with misstated financial statements,” ACSI says in a submission to the Corporations and Markets Advisory Committee’s review of executive pay.

The committee is investigating how to simplify incentive schemes and whether rules in the section 300A of the Corporations Act for reporting executive pay should be revised to reduce the complexity of remuneration reports.

But ACSI fears that attempts to simplify the reports on executive pay could deprive institutional investors of detail they want.

“ACSI does not want to see remuneration reports dumbed down,” ACSI chief executive Ann Byrne said.

“The issue of simplification is not about people not being able to understand remuneration reports. It is that they are very complicated and companies should make them less complicated.”

Article from The Australian, September 3, 2010.