The Productivity Commission is expected to deliver a number of changes to its report on executive pay when it hands the final copy to the Federal Government today, including the “two strikes” proposal and taxing of employee share schemes. The report comes after a gruelling nine-month process including public hearings, a draft report and submissions from companies opposing several of the commission’s proposals.
The original report, released in October, recommended 15 changes to executive pay including the controversial introduction of a “two strikes” plan, which would force boards to submit executive remuneration proposals to two shareholder votes.
Two consecutive votes with protests from more than 25% of shareholders would force the board to face re-election, but the Commission is reportedly considering moving that threshold on the second vote up to 50%.
Commission chairman Gary Banks yesterday said there was a “very good” response to the report and that the final report will reflect some of those protests.
”We received an extra 70 submissions on top of the 100 before our draft and many groups turned up at our public hearings,” he told The Age. ”This has helped us a lot in finalising our report to Government. On most issues, including our two-strikes proposal, there was a range of reactions… Out of all this I think we have been able to come up with a robust set of final recommendations.”
Tax counsel at the Institute of Chartered Accountants in Australia, Yasser El-
Ansary, says he expects the commission to take on a number of changes related to the taxation of shareholder equity.
“At a general level, it would seem that when the Productivity Commission held its public hearings as a follow-up, they certainly were very receptive to not only our collective reaction to the recommendations, but very receptive towards ideas that could be put in. That’s something we’ve found helpful.”
He notes the Government’s introduction in the report of a new type of taxation scheme, whereby shareholders would be taxed on their shares “at the time they invest, rather than a trading exercise”. He says the commission should address this in its final report.
“I’m reasonably confident the PC will take on board what we have to say. My feeling is that this tax scheme is not in the best interest of shareholders. The recommendation should include the taxation should be changed and employees should not be changed and taxed at the appropriate time.”
The comments come after a number of submissions to the commission rejected the two strikes proposal. The Australian Securities Exchange in particular last month recommended the two-strikes proposal threshold should be moved from 25% to 50%.
“Adoption of a ‘two-strikes’ approach based on a majority vote of greater than 50% being required on each occasion would represent a powerful accountability mechanism,” its submission read.
Woolworths also warned against intervention in executive pay, saying that “interference in the free market may place Australia at a significant competitive disadvantage relative to the international labour market and would result in shareholder returns being impaired”.
But the comments are at odds with the commission’s intent, noting that it found for the country’s 100 largest companies, executive remuneration grew by over 250% since 1993.
Other recommendations included:
However, it is still unknown whether the commission will amend some of these recommendations for the final report.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
