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.
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.
- The Australian Government Response to the Productivity Commission's Inquiry on Executive Remuneration in Australia: Released on 16 April 2010, the Government's response supports nearly all of the Productivity Commission's recommendations, including the "two strikes" proposal, and aims to further strengthen several of the recommendations by expanding their scope and enforceability.
- The Productivity Commission's inquiry report, Executive Remuneration in Australia: Released on 4 January 2010, this report makes recommendations to improve board capacities, reduce conflicts of interest, encourage stakeholder engagement, improve disclosure and ensure well conceived remuneration policies.
Copyright Productivity Commission 2010.
The Productivity Commission's Executive Pay Inquiry: an update on the issues: A presentation delivered at FINSIA in June 2009 by Gary Banks, Chairman of the Productivity Commission. Copyright Productivity Commission 2009.
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.
- APRA Prudential Standard APS 510 Governance and Prudential Practice Guide PPG 511 Remuneration: On 30 November 2009, APRA released final versions of revised prudential standards APS510, GPS510 and LPS510 dealing with governance among regulated authorised deposit taking institutions, general insurers and life insurers respectively.Copyright APRA 2009.
- Proposed extensions to governance requirements for APRA regulated institutions: The proposed extensions to APRA’s prudential standards on governance follow the recent release of international principles on sound remuneration practices by the Financial Stability Forum (FSF). The APRA discussion paper accompanies the draft governance standards and prudential practice guide provided above. Copyright APRA 2009.
- Company Law & Governance Update: Update on the APRA remuneration discussion paper by Blake Dawson. Copyright Blake Dawson 2009
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".
- Exposure draft package on the taxation of employee share schemes: Deloitte provides an overview of the reforms proposed on 14 August 2009.
- Taxation of Employee Share Schemes: Federal government’s media release on the final proposed changes to the tax treatment of employee share schemes.
- Reform of the Taxation of Employee Share Schemes: Consultation paper and exposure draft bill on the reform of the taxation of employee share schemes jointly released by the Treasurer, the Hon Wayne Swan MP, and the Assistant Treasurer, the Hon Chris Bowen MP.
- Impact of policy options paper on the tax treatment of employee stock plans: The impact of the proposed changes is outlined by Deloitte’s remuneration specialists.
- 2009-10 Federal Budget - Proposed changes to employee share and option plans: An overview of the proposed changes by Blake Dawson.
Copyright Blake Dawson 2009.
- Taxation of cross-border employee shares and rights: traps for the unwary: Deloitte discusses taxation issues for assignees to or from Australia, who hold shares or rights (options) under an employee share plan.
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.
- Governance alerts: Termination Payments
- Improving Accountability on Termination Payments: Press release and speech by the Minister for Financial Services, Superannuation and Corporate Law, the Hon Chris Bowen MP, on the introduction of the Bill.
- Corporations Amendment (Improving Accountability on Termination Payments) Bill 2009: Exposure Draft
- Government releases Termination Benefits Reform Bill: An overview by Blake Dawson.Copyright Blake Dawson 2009.
- Executive termination payments in Australia: An insight into current termination payment practice in Australia by Deloitte’s remuneration specialists.
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.
- 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.
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.
- Remuneration report assessment tool: This checklist sets out relevant regulatory requirements, rules and guidelines for companies preparing their remuneration report.