Implications of a “No” Vote: Non-Binding?

We have previously highlighted (June 2011 Newsletter) amendments made to the Corporations Act 2001 to strengthen the non-binding shareholder vote on executive remuneration. In particular, under the two strikes test (applying from 1 July 2011), shareholders are empowered to vote out a company’s directors if the remuneration report receives a “No” vote from a 25% or greater number of shareholders voting at two consecutive annual general meetings. 

Accordingly, while the vote on the remuneration report is non-binding, the consequences of consecutive “No” votes are real and will engender more meaningful Board consideration.

We note with interest recent shareholder dissatisfaction relating to the pay package for Bob Diamond, head of British bank Barclays. Under the corresponding executive remuneration regime existing in the United Kingdom, shareholders are similarly in a position to vote against the bank’s remuneration report.

Currently “No” votes are non-binding in the UK – essentially amounting to a protest, however there are proposals on foot to introduce a binding shareholder vote on future pay policy. Such policies will need to disclose results of previous non-binding votes and how they have been taken into account. Accordingly, whilst it is hoped that “No” votes today would prompt a review of executive pay policies, the proposed new rules in the UK are likely to involve greater consideration and communication of shareholder views on executive remuneration.

Related article in the Australian Financial Review, 11 April 2012
Related article from The Guardian, 19 April 2012

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