More shareholders want a say on executive pay rises

Figures prepared this week by PricewaterhouseCoopers confirm the rising trend of substantial "no" votes on pay rises at annual meetings so far, 21 per cent of ASX 100 companies to have held meetings have attracted less than 80 per cent support for their remuneration reports, meaning that more than 20 per cent of shareholders voted against the resolution, abstained or left their proxies open.

Although more than 20 companies with a June 30 year end are yet to hold meetings, it seems likely that votes against will be higher than last year, when the figure was 12 per cent. In 2007 it was just 10 per cent. In 2006, the no-votes to pay rises for ASX 100 company executives was a tiny 3 per cent

"There's no doubt there has been a trend over the last few years [for higher "no" votes] and this year it has stepped up even more," partner at PwC Debra Eckersley, says.

The protest votes come as the Productivity Commission's inquiry into executive pay in Australia enters its last stage, with the final report due on December 19. It will follow an AGM season marked by some lengthy and bitter meetings, where companies including Qantas, United Group and Transurban faced high "no" votes for the second year in a row.

"There have been some examples where companies have come back and dealt with issues from remuneration reports after a high 'no' vote the previous year, and to their credit they have engaged early, not just during the AGM period or the period leading up to it," Phil Spathis, from the Australian Council of Super Investors, said.

"But there have been the recalcitrant companies who remain recalcitrant."

This week, about 27 per cent of shareholders at Challenger Financial Services Group voted against the company's remuneration report, and at Lend Lease it was 41 per cent.

The shareholder vote on a remuneration report is non-binding it has no legal effect, but under the Productivity Commission's controversial draft recommendation, boards whose remuneration reports receive "no" votes of more than 25 per cent will be required to report back on whether shareholders' concerns have been addressed.

If the remuneration report garners a second, significant "no" vote the next year, all board members could face re-election.

The Productivity Commission, which unveiled its draft recommendations in September, has called for feedback on whether a 25 per cent threshold should trigger the board spill. The plan has met with howls of protest from the corporate sector, which has warned that it would give too much power to minority shareholders and would discourage directors standing for boards.

At a Productivity Commission hearing in Melbourne yesterday, proxy advisory firm RiskMetrics said it was against the "two strikes" rule because there were already ways of dismissing a board if enough shareholders were in favour.

"Conflating the feedback mechanism of the non-binding remuneration report vote with the potential of removing a director, actually has the potential to make people too scared to used the feedback mechanism," RiskMetrics' head of research Martin Lawrence, said.

RiskMetrics and ACSI spokesmen instead argued that tightening the Australian Securities Exchange listing rule 10.14 would be more effective than the "two strikes" plan.

The rule required shareholders to approve the on-market purchase of equities for executives until 2005, when it was loosened to make it easier for executives to buy shares through salary sacrifice.

Mr Spathis told the hearing that the amendments had created a legal loophole that let companies buy shares on the market for executive bonuses without shareholder approval. "This is not salary sacrifice, this is avoiding a vote," he said.