Shareholders of Australian public companies have been having their say on pay by law since 2005. The Australian Parliament is currently considering amendments to its say on pay rules that are aimed at increasing the impact on companies of significant shareholder votes against.
The ‘two-strikes’ test is a key proposed change included in the Corporations Amendment Bill 2011 (the Bill). If 25% or more of all shareholder votes are cast against a company’s remuneration report, this ‘first strike’ requires that the company respond to the negative vote in the following year’s compensation report…
The Bill requires that strike two triggers a shareholder vote within the meeting to decide whether the directors must stand for re-election. The vote on director reelection is called a ‘spill resolution’, If the director re-election resolution is supported by 50% or more of votes cast, the directors must stand for re-election at a “spill meeting” within 90 days…
A review of the comments that were submitted reveals that although the requirement that companies respond to the first strike was generally well received, the board spill resulting from a second strike was almost universally panned by investors and corporate spokespersons alike. The thrust of much of the opposition to spill votes was that director elections should not be triggered by fewer than 50% of shareholder votes. (Australia proposes ‘say on pay’ enhancements – SHARE – Shareholder Association for Research and Education)
Generally, I find myself coming down on the side of empowering shareowners at just about every turn. However, I agree this Australian measure would go too far. A second 25% vote could trigger a second report but I don’t think anything less than a rejection by a majority of shares voted should trigger a vote to “spill” the board. McRitchie, defending the rights of entrenched boards, who would have dreamed?
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