The remuneration committee is established to ensure that remuneration arrangements support the strategic aims of the business and enable the recruitment, motivation and retention of senior executives while complying with the requirements of regulatory and governance bodies, satisfying the expectations of shareholders and remaining consistent with the expectations of the wider employee population. This section of our site provides you with access to material on current issues facing Australian remuneration committees, including checklists, guides and a range of other useful publications relating to the committee’s operations and responsibilities.

Current issues

Pay governance

For companies regulated under the Corporations Act

In response to community concern about excessive pay practices, the Government asked the Productivity Commission to undertake a public inquiry into the regulatory framework around remuneration of directors and executives of companies regulated under the Corporations Act. This inquiry has now concluded and the Commission has recommended improvements to the existing framework governing remuneration practices in Australia. The final report was released on 4 January 2010 and the Government responded to this report on 16 April 2010.

For APRA regulated institutions

The remuneration committee is responsible for overseeing the design and operation of the organisation’s remuneration system. A key objective of this committee is to ensure the risk in remuneration strategy, policy and arrangements is adequately considered and that processes are in place to control unhealthy risk-taking. This is particularly relevant for Australian Prudential Regulation Authority (APRA)-regulated institutions.

Senior executive remuneration

Employee share schemes

On 2 December 2009, the bills on the reform of employee share schemes (ESS) were passed by both houses of the Australian Federal Parliament, without amendment. The new law will impact existing and future equity grants to Australian employees. The government says that they are intended to "ensure taxpayers are taxed consistently regardless of the forms of remuneration they receive". 

Termination payments

On 24 November 2009, the Federal Government introduced amendments to provisions in the Corporations Act 2001 and corresponding Corporations Regulations relating to termination payments. The final amendments clarify the meaning of “base salary”, the new threshold above which termination payments to company executives and directors must be approved by shareholders, and the types of benefits that are (and are not) subject to shareholder approval. The amendments also extend the rules to include senior executives and key management personnel of a disclosing entity, require unauthorised termination benefits to be repaid immediately, provide that retiree shareholders cannot participate in a vote on their termination benefit (except as a proxy) and increase the penalties applicable to unauthorised termination benefits.

The work of the remuneration committee

Aligning pay with performance

The remuneration committee should ensure remuneration arrangements focus executives on achieving long-term business objectives and growth in shareholder wealth. In satisfying this requirement, the committee should approve incentive arrangements, including KPIs and performance hurdles.

  • The risk of total shareholder return (TSR): This research paper by Deloitte’s remuneration specialists provides a framework for boards considering whether and how to use TSR as a performance measure for long-term incentive plans.

Remuneration reporting

The remuneration committee is required to ensure the remuneration report is prepared in accordance with legal disclosure requirements (s300A of the Corporations Act 2001), ASX listing rules as well as the recommendations set out in the corporate governance principles and recommendations, issued by the ASX Corporate Governance Council. Remuneration committees can also use the remuneration report to clearly communicate the commercial rationale behind remuneration decisions and demonstrate alignment between company performance and pay.

Financial year 2009 is the second year that auditors are required to opine on the remuneration report’s compliance with s300A. This year remuneration reports will also constitute the main source of executive remuneration data for government agencies in Australia.