THE two-strikes law is designed to hold directors accountable for executive salaries and bonuses. It means an entire company board can face re-election if shareholders disagree with how much executives are being paid. The law is an amendment to the Corporations Act and came into effect on July 1, 2011.
THE first strike occurs when a company's remuneration report — which outlines each director's individual salary and bonus — receives a "no" vote of 25 per cent or more by shareholders at the company's annual meeting.
THE second strike occurs when a company's subsequent remuneration report also receives a "no" vote of 25 per cent or more.
When a second strike occurs, the shareholders will vote at the same AGM to determine whether all the directors will need to stand for re-election. If this "spill" resolution passes with 50 per cent or more of eligible votes cast, then a "spill meeting" will take place within 90 days.
AT THE spill meeting, those individuals who were directors when the directors' report was considered at the most recent AGM will be required to stand for re-election (other than the managing director, who is permitted to continue to run the company).
IDEA BEHIND THE LAW
THE reform is intended to provide more accountability for directors and increased transparency for shareholders. When a company receives significant "no" votes on its remuneration report over two consecutive years, and has not adequately addressed concerns raised by shareholders, it is appropriate for the board to be held accountable through a re-election process.