The Corporations Legislation Amendment (Deregulatory and other measures) Bill 2014 recently released by Treasury for consultation contained a number of suggested remuneration-related amendments, the implications of which may be broader than intended.
Sub-paragraph 300A(1)(e)(iv) of the Corporations Act 2001 (the Act) currently requires disclosure of the value of options that were held by KMP but lapsed during the reporting year because a condition required for the options to vest was not satisfied. Sub-paragraph 300A(1)(e)(vi) requires disclosure of the percentage of the value of the person’s remuneration that consists of options.
Item 15 of the Corporations Regulations 2M.3.03 (the Regulations) already requires disclosure of the number and value of any options that have been granted during the reporting period and the number of options that have vested during that period. Consequently the information required under the Act can already be deduced from the information required under the Regulations. The proposed amendment will remove the requirement to report the value of lapsed options and the percentage value of remuneration consisting of options, and replaces this with a requirement to disclose the number of lapsed options and the year in which the lapsed options were granted. This reform is expected to provide information that is of more use to shareholders.
We note that under both sub-paragraph 300A(1)(e)(iv) of the Act and item 15 of the Regulations, value is to be calculated by reference to the Australian Accounting Standards. The calculation of fair value pursuant to these accounting standards has the potential to distort the ‘true’ value of the options for remuneration intent purposes. Removing the requirement to disclose the (fair) value of lapsed options and the percentage (fair) value of remuneration consisting of options and, instead, requiring disclosure of the number of lapsed options does not fully address the problem of calculating the number of options granted and the number of options that lapse based on the fair value of the options under accounting standards. More focus should be placed on the basis for calculating the number of options granted and whether this is erroneously based on their fair value for accounting purposes.
The Bill also:
- Adds a requirement for companies to include a general description of their remuneration governance framework to the extent that it is not included elsewhere in the annual report.
- Removes the requirement that unlisted disclosing entities prepare a remuneration report.
- Extends the Remuneration Tribunal’s jurisdiction to Chairs and Member positions of the Financial Reporting Council (FRC), the Australian Accounting Standards Board (AASB) and the Auditing and Assurance Standards Board (AUASB).
Submissions on the proposed amendments are due by Friday 16 May.