The effect of the rejection of a remuneration report

The Australian reports that Telstra shareholders rejected the Board’s remuneration report at its AGM but that the Board intends to proceed with the proposed remuneration packages for its executives.

See Telstra Chairman’s statement

Under section 300A of the Corporations Act, a listed public company’s annual directors’ report must contain a discussion on remuneration of directors, secretary and senior managers in a separate remuneration report.

The remuneration report must include a discussion of the relationship
between the remuneration policy and the company’s performance.

If an element of the remuneration package for a director, Company
Secretary or senior manager is dependent on them satisfying a
performance condition, the company must disclose:

  • a detailed summary of the condition
  • an explanation of why the condition was chosen
  • the methods used in determining whether the performance condition has been satisfied.

Companies also have to explain why the company’s securities form
part of the remuneration if the securities are given without
satisfaction of a performance condition.

Sections 249L(2) and 250R(2) require that at a listed company’s AGM, the members vote on an advisory (non-binding) resolution that the remuneration report be adopted.

Even though a vote to reject a remuneration report is not binding, a
company should explain to its shareholders what action, if any, it
intends to take in response.

The Corporations Act is silent on the consequences if a Board proceeds
with its remuneration proposals despite a negative shareholder vote.

Of course the shareholders may review their position when electing directors in the future.

For listed companies, Listing Rule 10.17 provides that members must
determine directors’ fees and that any increase requires members’
approval. LR 10.17.2 provides that fees paid to non-executive directors
must be by fixed sum. Similarly, LR 10.17 provides that remuneration to
executive directors (salary or fee) must not include a commission on,
or percentage of, operating revenue.

Telstra’s AGM passed a resolution to increase the aggregate fees payable to non-executive directors.

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