Past, Present and Future Pay: Submissions Postmortem

Treasury has uploaded 39 submissions to the remuneration disclosure draft legislation released in December, which we have written about in previous newsletters. The submissions make for interesting reading. We have summarised comments from the submissions for your perusal.

The Egan Associates Submission can be found here.

Disclosing past, present and future pay

Unsurprisingly, the most contentious point of the draft legislation was the requirement to disclose past, present and future pay for KMP personnel.

Points raised included:

  • The legislation would not replace current statutory reporting requirements (which are the cause of much shareholder and media confusion), but add to them. This could lead to two sets of unreconciled numbers, likely to add complexity and confuse readers of the remuneration report.
  • Some amounts would be double counted as they passed from future to past pay, leading to investors believing KMPs were being paid more than they are.
  • The disclosure method decouples performance and pay by not making clear over what performance period the pay refers to and also by having STIs reported when they are paid and not in the period they were earned.
  • Lack of definition for the terms “paid”, “total amount” and “granted” with particular concern over whether face value or accounting values would be used to value equity payments, at what point the value should be calculated (eg at grant date, at vesting date, at exercise date) and what point an executive was considered “paid”.
  • This lack of definitions and a lack of clarity on the format of disclosure would lead to a lack of comparability between companies, as each company would follow their own set of rules.
  • The past pay figure could lead to negative votes on the remuneration report even though the pay could be the result of discontinued past pay practices.
  • Share price movement being counted as remuneration, which Origin Energy considered misleading.
  • Terminology issue with future pay – some investors might think this is guaranteed pay for a future period. In a similar way for past pay – some investors might think this was paid in previous periods.
  • The legislation doesn’t achieve its aim of simplifying remuneration reporting. All of the elements of past, present and future remuneration are already in most annual reports and the prescriptive changes are a heavy handed way of ensuring it, with respondents seeking the government to either make less sweeping changes or carry out a complete overhaul where there is a widely accepted need for change.


  • Removing statutory disclosures to financial statements, with aggregate numbers provided rather than per KMP numbers.
  • Remove current equity-based payments figure from statutory table and replace them with the value of equity-based payments vested during the year.
  • Adapt our own version of the UK’s single figure approach, which includes a figure encompassing amounts “received or receivable for multiple reporting periods where
    1.  Final vesting is determined as a result of the achievement of performance conditions that end the year being reported on or shortly after the end of that period; and
    2. The final value is not dependent on the achievement of further performance conditions.”
  • Define how to value equity-based incentives – some submissions were, like Egan Associates, advocates of face value minus any exercise price, while others advocated fair value.
  • Create four categories: past pay (performance based), present pay (fixed), present pay (performance based), future pay.
  • To link with performance, use the amount realised, aka the executive became “entitled” to during the period, no matter when it’s paid.
  • Use a principles-based requirement instead of prescriptive one: shareholders would raise issues using the remuneration report vote.
  • Don’t try and put a value to share grants, only provide information on the number of equity instruments granted, vesting date and share price at grant, or provide grant value at the time of the remuneration decision to show “intent”.
  • To avoid share appreciation being included in “past pay” amount, use grant values only and the crystallisation percentage.
  • Wait until the UK has implemented its scheme and see how it pans out.
  • Complete a Regulatory Impact Statement before acting.

Clawback in the case of a material misstatement

Points raised include:

  • It is difficult to claw back remuneration from former executives if equity vests at termination due its becoming taxable at the termination point.
  • Material misstatement likely to occur rarely, such that this legislation will not affect remuneration policy.
  • NEDs would be covered by the executives, even though their remuneration is fixed, and they would be the ones deciding on the clawback, creating a conflict of interest.
  • Not needed, as if this unlikely event were to occur, the company would seek money back through the courts.
  • Companies will likely increase deferral of STI to enable clawback over a period of three years, which will reduce the value of the STI to executives, undermining the effectiveness of incentive plans.


  • Almost all the submissions (including that of the ASX Corporate Governance Council) were of the belief this issue would be better tackled in the ASX Corporate Governance Council’s Corporate Governance Principles as it is written in an “if not, why not” format.
  • Increase the scope of the legislation to include clawback where there has been excessive risk taking, a significant deterioration of financial performance or significant expense item such as write downs of inventory, major assets, restructuring costs, losses on disposal of assets etc.
  • Change the taxation point of equity in share plans for retiring executives.


 Points raised included:

  • Most of the information is being disclosed, the additional requirements are unnecessary.
  • Definitions of terms used unclear, such as “benefits”, “post severance arrangements”, “non-contractual payments on termination” and “amounts paid specifically for termination”.
  • There may be double counting between termination benefits and current reporting for financial year (for example superannuation).
  • Possible loophole for organisations to not disclose by not finalising termination arrangements until after the period end.

Further changes to legislation

At the time of publishing our April Newsletter, Treasury released draft legislation outlining disclosure requirements to be added into the Corporations Regulations 2001. The draft will not mean additional disclosure: the disclosures in question (including KMP option and rights holdings and transactions as well as related party transactions) are currently made in the notes to the financial statements as required by AASB 124. The Australian Accounting Standards Board believed it was more appropriate that they be dealt with in legislation than in the accounting standards, so they are being removed from the standards effective 1 July 2013 and added into the Corporations Regulations, to be included in the Remuneration Report. Submissions have closed on the legislation.

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