With the passage of the Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Act 2011 in late June last year, directors’ reports of listed companies now have to include details of any remuneration consultants they use and any remuneration recommendations (as defined in the Act) provided by those consultants.
If the latter is provided, any other kind of advice the consultant offered (for example, tax advice, legal advice and accounting services, but also general ‘benchmarking’ of remuneration) must also be disclosed.
Further, and importantly, the amounts paid for the remuneration recommendation(s) and any other kind of advice must also be disclosed in the report. This is to mitigate against any perceived or actual conflict of interest arising and to assist shareholders to assess the independence of the advice provided by the remuneration consultant.
With ‘remuneration recommendation’ defined as a recommendation on how much the most senior management personnel (KMP) remuneration should be and/or what elements it should have, a number of reports released to date have disclosed the appointment of a remuneration consultant accompanied by a statement that no remuneration recommendations were provided by the relevant consultant.
The questions that need to addressed under this scenario include:
- Was any remuneration advice provided that did not constitute a ‘remuneration recommendation’?
- If so, what was the nature of such remuneration advice and the reason it did not constitute a ‘remuneration recommendation’?
- Was any other kind of advice provided (perhaps substantial) that may be associated with a perceived conflict of interest on the part of the consultant?
An implication of the above is that a number of boards may not be either receiving or taking advice in relation to KMP remuneration matters. We will soon be undertaking an analysis and discussion on this issue.