With the AGM season just weeks away, at least 500 directors are having hot sweats about investor treatment of their remuneration reports - and in some cases chief executive termination packages - particularly if the company suffered a first strike against the report last year.
Unlike previous years, shareholders finally get to have some bite.
This AGM season marks the first year that the full impact of the "two strikes" rule can be tested, which means for those 108 listed companies that suffered a first strike against their remuneration report last year, a second strike this year will automatically result in a resolution to dump the board, and it will pass if supported by 50 per cent of votes.
The company would then have 90 days to hold another meeting to have a full board re-election.
While the chances of any company suffering a board spill is low, it is causing high anxiety among directors who have made unprecedented attempts to meet investors and corporate governance experts to discuss their remuneration reports before the big day. It explains why a handful of CEOs have opted to give up any bonus.
Indeed, research released last week by the Australian Council of Superannuation Investors (ACSI) revealed that the average bonus for the top-100 chief executives fell 8.9 per cent.
The feedback that boards have been getting from investors is that high pay levels won't be tolerated from those companies that have underperformed the market.
Nor will generous termination packages, particularly those departures that have been described as resignations.
In the case of the banks, which have had limited income growth, pay levels are being particularly scrutinised.
So, too, are the pays of senior executives at listed property trusts, which have historically paid their senior executives handsomely and blew up billions of dollars of shareholder value during the financial crisis.
Nevertheless, companies that have been in the headlines lately with profit downgrades or other controversies, including mining services group NRW Holdings, Pacific Brands and Aspen Holdings, will be feeling particularly nervous given they received a "first strike" - a "no" vote of 25 per cent or more - against their remuneration reports last year.
If they get a second strike, they will be forced to hold a meeting to allow investors, management and directors to vote on a board spill.
The threat of replacing an entire board has created panic among directors, partly because of the perceived public humiliation involved, but also because of the way the resolutions are structured.
A company with a first strike is required to include a conditional resolution to shareholders to convene a meeting where all directors will be required to seek re-election in the event of a second strike. Given most institutional investors lodge their votes weeks before the annual meeting, it means they have to vote on a spill resolution before knowing whether or not there has been a second strike.
The peak body for company secretaries, Chartered Secretaries Australia (CSA), felt so concerned about the potential for confusion as a result of the "complex possible outcomes" facing shareholders that it has issued a set of guidelines designed to reduce the chances of a board spill.
The CSA chief executive, Tim Sheehy, said yesterday "it is likely that the companies that received a first strike last year will have engaged their shareholders and will see their remuneration report approved by shareholders". But he warned there was no guarantee, so they have to make sure they provide for all possible outcomes, including a spill meeting and even voting on spilling the board.
While this is all well and good, what is also needed is better transparency when it comes to remuneration reports. Many of them are long and unwieldy and don't cover the right information.
This was no better illustrated than the ACSI report last week, which was compiled by Ownership Matters, and which showed that the boss of Aquila Resources took home a $169 million options payout last year but his salary was recorded in the remuneration table as being just under $600,000, which meant most people missed it.
Shareholders want to be able to know that what they are seeing in remuneration reports is what companies are actually paying out to executives. This is rarely the case due to certain accounting compliance issues requiring companies to place a theoretical value on a remuneration package.
As noted last week, BHP Billiton's remuneration report is more than 25 pages long and offers a variety of truths when it comes to the pay of its boss Marius Kloppers.
A statutory table based on some complex theoretical assumptions required under the Corporations Act attributes a bottom-line figure of $9.8 million for his total remuneration, while the BHP remuneration committee uses a different, more realistic, set of assumptions to calculate a total remuneration package for 2012 of $6.6 million.
Yet another table, titled Awards of Performance Shares under the LTIP, details shares that vest in any one year. It shows that in August this year, Kloppers received 333,327 performance shares that were issued five years ago and which met certain performance hurdles linked to total shareholder returns and benchmarked against its peers. Based on BHP's current share price, these shares are worth about $11 million.
The government needs to fast-track any changes to legislation to ensure that what shareholders see in an annual report is what the company is paying out. It's as simple as that.