Under the amendments to the Corporations Act 2001 mentioned in the previous article, Key Management Personnel and their closely related parties are prohibited from exercising undirected proxies on remuneration related resolutions at annual general meetings.
An unintended consequence of this rule was that undirected proxies (where shareholders appoint the Chairman to vote on their behalf) were not counted last year. According to Computershare, 66 per cent of undirected proxies were not counted. This resulted in 108 companies incurring a “first strike” under the new two strike pay rule.
Recent press has revealed that despite the Government’s stated intention to fix the rule, this flaw is unlikely to be fixed in time for the 2012 shareholder meeting season. Whilst the Government appears confident this delay should not, in itself, result in the above 108 companies incurring a second strike (triggering a potential removal of the board), there is a real risk that the new remuneration rules will have a significant impact sooner than anticipated.