Question

Background:

Australia’s “two strikes” rule empowers shareholders to vote on a board spill if the remuneration report of a public company receives 25% or more dissenting votes for two consecutive years. “Say on pay” legislation has been introduced in several countries but the Australian version is unique.

Required:

Now based on your findings in Question (3) of your submitted group assignment, use the chosen Australian publicly listed company to:

1. Evaluate the Australia’s “two strikes” rule. You are required to consider and analyse BOTH the potential benefits and unintended consequences (e.g., negative impact or limitations) of the “two strikes” rule.

Answer 1

To enhance duty of govt compensation, Australia delivered the ‘say-on-pay’ regulation in 2011, that's broadly referred to as the ‘-moves’ rule. We check out the results of this new rule for the pay-overall performance hyperlink in Australian companies. Employing a matched-pair design, we discover that pay adjustments of the leader govt officer and the important thing control employees have been now no longer drastically undoubtedly associated with the inventory returns of the companies that registered a ‘first strike’ in 2011 beneathneath the ‘-moves’ rule. However, the members of the family advanced drastically in 2012. Our outcomes additionally recommend that the shareholders of the ‘first-strike’ companies can also additionally were over-passionate about their balloting electricity in 2011 however exercised this electricity greater judiciously in 2012. Our findings offer vital insights for the worldwide debate on governance of govt compensation. Five years after the advent of the 2 moves rule, it’s a great time to mirror at the regulation’s effectiveness in making sure affordable govt remuneration. The Good

· Appears to have an effect on govt praise

Preliminary outcomes from studies performed with the aid of using Professor David L. Yermack from the NYU Stern School of Business and Professor Ray da Silva Rosa from the University of Western Australia located that for corporations receiving a strike among 2011 and 2013 overall CEO Pay fell withinside the 12 months afterwards with the aid of using a median of 20% whilst for a 2d strike it fell withinside the following 12 months with the aid of using about 32%. We will observe up in this studies after the whole outcomes were released.

· Increases shareholder engagement

The rule has reminded Boards that they may be now no longer an island unto themselves, however are there to symbolize the hobby of shareholders. Where there was a strike, or even earlier than a strike occurs, the guideline of thumb has mobilised Boards to interact with their shareholders and ask which components of the remuneration approach shareholders are sad with. This opens a talk in order to optimistically cause an development.

· Improves transparency and first-rate of disclosure

Sometimes unfavourable votes are because of influencers and shareholders forming a view primarily based totally on a loss of records, drawing interest to insufficient disclosure. This attention has brought about greater records being disclosed at the mechanics of pay approach.

· Encourages most important shareholders to keep in mind the desires of all shareholders

In a small quantity of corporations most important shareholders take a seat down at the Board and those Directors can also additionally keep the view that they could forget about different shareholders and control remuneration as they might in a personal company. The moves rule permits minority shareholders to specific their reviews on remuneration.

· Increases attention on whether or not pay is affordable

The moves rule has supplied a platform for shareholder companies together with the Australian Shareholder Association to specific a view approximately the appropriateness of pay. This can't be defined as a left-wing reaction: there are conservative forces that harbour worries on whether or not the extent of govt praise is affordable. The Bad

· Strikes might not mirror the perspectives of the bulk of shareholders

There are problems which can come into play. ·

1. If a big share of shareholders do now no longer vote at the remuneration file resolution, the impact of these that do is increased. Two examples of in which this could skew votes consist of in which control have a big shareholding and aren't entitled to vote at the remuneration file, or in which there's a big share of retail buyers who're much less possibly to vote on AGM resolutions.

2. If there a small quantity of shareholders with a sizable shareholding, due to the fact the vote is primarily based totally at the percentage of stocks held in preference to the quantity of shareholders, a strike can be recorded primarily based totally at the competition of a small share of shareholders. This is of unique problem in which the ones shareholders have a specific schedule that might not be withinside the first-class pursuits of different shareholders

· Proxy advisors have sizable influence

Proxy advisors will make their balloting tips primarily based totally on whether or not they consider a company’s remuneration shape is reflective of first-class practice – their attention will range from 12 months to 12 months. 8.    This 12 months there appears to be a heightened attention on annual incentive payments — the standards that cause an incentive charge and the pay for overall performance alignment in phrases of real tiers of earnings development, dividend yield, and percentage fee development

ü Shareholders might not have taken into consideration the elements that brought about choices on govt pay

There changed into a latest vote towards the Remuneration Report backed in large part with the aid of using one of the proxy advisers, in which the number one statement changed into that the currently appointed Chief Executive changed into paid a number of cash as compared to what they believed he might were paid in his preceding job, and paid greater than his predecessor. This did now no longer well known that the predecessor changed into hired with the aid of using personal fairness and changed into paid predominantly via stocks and coins incentives.

· The Ugly

ü Strikes can also additionally don't have anything to do with the scale or shape of praise

Because of the 25% threshold, it's miles less difficult for sizable shareholders to specific displeasure thru a vote towards a remuneration file in preference to with the aid of using balloting towards a Director’s election (in which over 50�verse votes are required to forestall a Director being elected).

ü There are any quantity of worries that activist shareholders can be expressing with the remuneration file vote. Examples consist of displeasure regarding:

1. The overall performance of a Director or the Chief Executive

2. An ESG (environment, social and governance) initiative being taken with the aid of using the company

3. Poor or surprising economic outcomes or mistakes in judgement

4. Tenure of the Chairman or Directors Board composition (The blend of competencies withinside the Board)

5. No machine is ever perfect. There are truely components of the 2 moves rule that might be advanced. How to limition the usage of votes towards the remuneration file to citizens with valid remuneration worries is uncertain.

A capability development in any other vicinity can be that the credentials of the personnel finishing the studies for proxy advisors be disclosed in addition to the method they use to attain their conclusions and put together their tips.

For balance, there can also additionally want to be greater element on remuneration consultants’ credentials, tips and reasoning withinside the remuneration file.

It might additionally be beneficial for there to be knowledge from shareholders that remuneration is a complicated vicinity this is continuously converting primarily based totally on marketplace dynamics and in which “first-class practice” can range having regard to industry, working locations, economic scale and skills appeal and retention challenges.