The federal government has announced its intention to push ahead with Corporations Act amendments that would require listed companies to disclose the steps taken to claw back bonuses and other remuneration in the event of an error in company financial statements.
In an address to attendees at yesterday's ASIC Summer School, the Parliamentary Secretary to the Treasurer, David Bradbury, announced the amendments alongside news the corporate regulator would receive an additional $11.4 million from the government to strengthen its surveillance of the industry and discipline of practitioners.
"I am announcing that the government will progress amendments to the Corporations Act 2001 to require listed companies to disclose to shareholders through the remuneration report the steps they have taken to claw back bonuses and other remuneration where a material misstatement has occurred in relation to the company's financial statements," Bradbury said.
"In this situation, if the company has not clawed back any remuneration, the board will be required to provide a detailed explanation to their shareholders - something which could be referred to as an 'if not, why not' requirement."
In the situation where a company decides to claw back remuneration, he said it would also be required to explain the reason behind the move.
"If shareholders are unhappy with the company's actions, they would be able to use their powers under the 'two-strikes' rule to vote down the remuneration report and potentially spill the board," he said.
The government's announcement follows the work it undertook through a detailed discussion paper and consultation with stakeholders.
"These reforms put the onus on listed companies to make sure they have provisions to claw back bonuses and other pay from executives if there has been a material misstatement of a company's financial statements," Bradbury said.
"Clawback provisions in executive contracts are already being adopted by many listed companies and these reforms will ensure that shareholders are able to have a say about the efficacy of those provisions."
As well as announcing clawback provisions, Bradbury said the government intended to progress with four recommendations made by the Corporations and Markets Advisory Committee (CAMAC).
The government proposes to progress four of CAMAC's recommendations, which involve:
. requiring companies to set out in their remuneration report a general description of their remuneration governance framework (CAMAC recommendation 1);
. requiring the disclosure of all payments (including entitlement payments, severance payments and post-severance payments) for key management personnel upon their retirement from the company, regardless of whether those payments were provided under a contract of employment (CAMAC recommendation 8);
. requiring that the remuneration report disclose, for each key management personnel, crystallised past pay, present pay and future pay (CAMAC recommendation 9); and
. requiring that the remuneration report disclose any options that have lapsed in the current financial year and indicate the year(s) in which they were granted. There will be no obligation to include a value for the lapsed options nor to disclose the percentage of the value of remuneration that consists of options as this can already be deduced in other ways (CAMAC recommendation 7).
In addition, Bradbury said the government proposed to progress a number of other changes, which involve:
. relieving certain unlisted entities from the obligation to prepare a remuneration report, which will significantly reduce the regulatory burden on companies that are not subject to the 'two-strikes' mechanism; and
. inserting disclosure requirements relating to related-party transactions into the Corporations Regulations, as these disclosure requirements will be removed from the accounting standards from 1 July 2013.
The government will undertake further consultation with industry in the latter half of 2012.
Meanwhile, the government has provided funding of $11.4 million to ASIC to strengthen its surveillance of the insolvency system.
"We want a resilient, transparent and accountable corporate sector and a shareholder base that is confident that it can actively participate in the market and have its concerns over performance and pay addressed and I look forward to working closely with stakeholders as we progress these reforms," Bradbury said.
"While creditors will be given new tools, ASIC will continue to play a key role in promoting confidence in the insolvency system. That is why the government has announced an additional $11.4 million to strengthen ASIC's surveillance of the industry and discipline of practitioners.
"The government is confident that the result will be a framework for insolvency regulation that promotes a high level of practitioner professionalism and competency, enhances transparency and promotes increased efficiency in insolvency administration."
