Two-strikes policy hits home

SOME of the country's most powerful investors have put corporate Australia on notice to respond to any protest vote against excessive executive pay or face a boardroom overhaul.

The warning came as homewares maker GUD Holdings yesterday became the first company to be hit with a protest vote under the tough new ''two-strikes rule'' on executive pay, giving the company a year to appease shareholders.

Nearly 42 per cent of GUD shareholders voted against the remuneration report, which last year gave chief executive Ian Campbell a 33 per cent pay increase to $2.23 million over the past year even as profits fell 14 per cent.

GUD chairman Clive Hall was forced to defend his management team during the annual meeting, arguing the maker of Sunbeam appliances had delivered ''superior shareholder returns'' over the long term.

The Australian Council of Superannuation Investors said companies needed to revisit remuneration structures if they were hit with protest votes.

''Our members expect executives to be paid for performance,'' said ACSI chief executive Ann Byrne. ''They expect there to be stretch hurdles for both short-term and long-term bonus payments.''

ACSI represents investment mandates of about $300 billion.

A list of Australia's worst performers on executive pay emerged yesterday, with three companies - Cabcharge, Challenger Financial and Transurban - receiving a ''strike'' that relates to a protest vote of more than 25 per cent against their remuneration reports in each of the past three years.

Transurban has topped the list, the toll-road operator averaging a 55 per cent ''no'' vote against its executive pay report over three years. Transurban is scheduled to hold its annual meeting on Tuesday.

Challenger, which does not hold its meeting until next month, has received the highest single protest vote among big companies, with nearly 70 per cent of shareholders against the remuneration report last year. A further 10 companies, including Rio Tinto, Qantas and Downer EDI, remain on watchlists after receiving two strikes against their executive remuneration reports since 2008.

Rules introduced by the federal government in July make it tougher for companies to ignore protest votes. Under the two-strikes rule, if a company receives more than a 25 per cent no vote against a remuneration report at two consecutive annual meetings, then shareholders must vote on a board spill.

If a simple majority of votes favour a spill, then a fresh election of all directors must occur within 90 days.

JPMorgan analyst Gerry Sherriff said the rules would lead to an overhaul of executive pay.

''The two-strikes rule puts greater scrutiny on boards to devise executive remuneration structures better aligned with the performance of the company,'' Mr Sherriff said.

The policy has been bitterly opposed by company directors, and former BHP Billiton chairman Don Argus last week stoked more controversy, telling investors to sell their shares if they objected to executive pay.