Shareholders given power on executive pay

The Productivity Commission has delivered its draft recommendations on executive salaries, giving more power to shareholders.

The draft report, which outlined 15 proposals designed to improve the governance structure through which investors can hold companies accountable for executive pay, was welcomed by some as common sense, while others criticised it as not going far enough.

The proposals included giving investors the power to sack an entire board if it twice ignores concerns about executive pay. This has been labelled by some as the “two-strikes proposal”, whereby a board will be forced to stand down and seek re-election if it ignores the will of shareholders twice. If 25 percent of shareholders oppose a remuneration package, the board will be required to report back with another proposal. If 25 percent or more again oppose the package, the board will have to stand down.

The report was commissioned by the Rudd Government in response to the community backlash against excessive executive pay. The report noted that executive pay has grown by 250 percent (in real terms) since 1993. Among the top 20 CEOs, the average pay is $10 million a year, or 150 times average earnings.

The Commission will hold public hearings on executive pay in late October before tabling a final report to Government in November.

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