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Ablen, David --- "Remunerating 'Fairly and Responsibly' - The 'Principle of Good Corporate Governance and Best Practice Recommendations' of the ASX Corporate Governance Council" [2003] SydLawRw 25; (2003) 25(4) Sydney Law Review 555


Remunerating ‘Fairly and Responsibly’

The ‘Principles of Good Corporate Governance and Best Practice Recommendations’ of the ASX Corporate Governance Council

DAVID ABLEN[*]

1. Introduction

The ASX Corporate Governance Council[1] released its guidelines for best practice in March 2003. The Principles of Good Corporate Governance and Best Practice Recommendations are a significant development for corporate governance practices in Australia.[2] In particular are the recommendations concerning directors’ and executives’ remuneration. Following a number of corporate collapses and failures in Australia over the last few years, widespread criticism has emerged over the pay-setting practices of various companies, which often provided for excessive payments at the expense of shareholders’ wealth. As a consequence, directors’ and executives’ remuneration has become a primary focus in the corporate governance debate in Australia. Fundamental to good corporate governance, according to the Council, is the principle that companies remunerate ‘fairly and responsibly’.

In this paper, we examine the Council’s statement of best practice in the context of remuneration. With its objective to develop a set of guidelines that meet international standards, we assess these guidelines’ effectiveness in requiring companies to remunerate ‘fairly and responsibly’. Similarly, in view of the Council’s support for transparency, we highlight the importance of its full disclosure regime to securing openness and accountability in the overall remuneration process.

2. The Principles of Good Corporate Governance and Best Practice Recommendations

The ASX Corporate Governance Council specifically identified 10 essential principles ‘that [it] believes underlie good corporate governance’.[3] According to the Council, a company should:

1. Lay solid foundations for management and oversight;

2. Structure the board to add value;

3. Promote ethical and responsible decision-making;

4. Safeguard integrity in financial reporting;

5. Make timely and balanced disclosure;

6. Respect the rights of shareholders;

7. Recognise and manage risk;

8. Encourage enhanced performance;

9. Remunerate fairly and responsibly;

10. Recognise the legitimate interest of stakeholders.

Based on these principles, 28 separate recommendations serve as key guidelines for corporate best practice. As non-binding recommendations, they allow listed entities to adopt only those they consider appropriate to their particular circumstances. Given this flexibility, it may be argued that the recommendations themselves lack teeth. But at the same time, the disclosure of corporate governance practices under ASX Listing Rule 4.10.3,[4] favour an ‘if not, why not?’ approach to compliance.[5] While a company has the flexibility not to adopt any of the Council’s recommendations, this flexibility is tempered by the requirement to explain why.[6]

3. Principle 9 - Remunerate Fairly and Responsibly

Examining the proposals for remuneration under this principle involves two issues. First, how should companies remunerate ‘fairly and responsibly’? This is reflected in the five main recommendations of the Council. Accordingly, achieving best practice involves the need to:

9.1 Provide disclosure in relation to the company’s remuneration policies to enable investors to understand (i) the costs and benefits of those principles and (ii) the link between remuneration paid to directors and key executives and corporate performance;

9.2.1 Establish a remuneration committee;

9.2.2 Clearly distinguish the structure of non-executive directors’ remuneration from that of executives;

9.2.3 Ensure that payment of equity-based executive remuneration is made in accordance with thresholds set in plans approved by shareholders; and

9.2.4 Provide the information indicated in Guide to reporting on Principle 9.

Following these recommendations, the second issue focuses on their effectiveness. That is, how well do these recommendations ensure that companies remunerate ‘fairly and responsibly’?

A Company’s remuneration practices may be defined in relation to both their process and outcome. ‘Process’ involves how remuneration is determined while the ‘outcome’ is the result of this process. The idea of ‘fair and responsible’ remuneration closely looks at these two key stages. It essentially aims for an objective remuneration process which is critical to establishing remuneration amounts that are sufficient and reasonable. As the Council suggests, this principle is driven by two key remuneration policies that companies need to adopt. Fundamentally, these policies should be adequately directed to attracting and retaining talented and motivated individuals who can successfully manage the company.[7] According to the Greenbury Committee in the UK,[8] companies should avoid paying more than is necessary for this purpose.[9] In addition, the remuneration policies of the company should clearly define the relationship between performance and remuneration.[10] This represents efforts to align the interests of managers and shareholders by linking pay to performance.

These two policies, articulated by the Council, form the basis upon which the remuneration process and outcome should be influenced. With this in mind, the Council gives support to the idea of ‘full disclosure’ that is consistent with the recommendation of the Greenbury Report.[11] This provides for a greater level of transparency, enabling shareholders to effectively assess the extent to which the process and outcome of remuneration conform to the remuneration policies of the company. Full disclosure more importantly underlies the overriding principles of accountability and openness with respect to directors’ and executives’ remuneration.[12] However the nature of disclosure in this context gives emphasis not only to content but also to its form. That is, disclosure that yields informative value.

4. Process

The determination of remuneration is a critical stage where a company would initially be expected to fulfill any requirement to remunerate ‘fairly and responsibly’. But the entire process must ultimately reside in the company’s remuneration policies that serve to guide its actions and decisions. The remuneration policies suggested by the Council highlight the major issues concerning executive remuneration, in particular, the concept of pay-for-performance, which provides an objective measure of ‘reasonable’ remuneration.[13] The disclosure of these policies, as supported by Recommendation 9.1, proves significant in two ways. First, it articulates the means by which the remuneration process is directed. Second, it allows those involved in the process to be accountable for their decisions. In this regard, disclosure serves as a regulatory technique as argued by Hill.[14] Shareholders, as a result, will therefore be in a better position to determine whether any departure from the companies’ policies has occurred.

A. Remuneration Committees

Determining remuneration is an imperfect process on its own. Notwithstanding a company’s remuneration policies, it is not immune from potential conflicts of interest. In line with the recommendations of the Greenbury Report,[15] the ASX Council recommended (R9.2) the establishment of a remuneration committee by the board. While many companies in Australia already have in place remuneration committees that advise on remuneration issues,[16] this initiative represents a positive development in safeguarding the remuneration process.[17] Earlier on, the importance of adopting effective remuneration policies to adequately direct the pay-setting process was recognised. With a remuneration committee, comprised of a majority of independent directors,[18] the task of formulating such policies will be objectively enhanced. As a consequence, the structure of executive remuneration packages by remuneration committees[19] may allow for greater emphasis in linking rewards to corporate and individual performance. As Ramsay suggests, remuneration committees may therefore reduce the inconsistencies in the pay-for-performance relationship.[20]

Despite the merits of remuneration committees, they are nonetheless subject to their own limitations. Although they are a clear procedural improvement, they are by no means a complete answer to perceived problems in the area of director and executive compensation.[21] Hill indicates that non-executive directors may be less impartial than the remuneration committee model would seem to presume: ‘Non-executive directors [may] be constrained by loyalty to other board members and may even have an indirect conflict of interest if they are executive officers of comparable companies.’[22] Yablon argues that remuneration committee members may also have a personal relationship with the CEO.[23] In essence, remuneration committees are part of the remuneration process that is vulnerable to what Crystal refers to as the ‘ratcheting effect’.[24] Here, it is said that the corporate compensation system, once it gets set in motion, generates higher and higher levels of executive compensation as each participant in the process acts in accordance with his or her own self-interest.[25]

While remuneration committees may add benefit to the overall process, this alone does not provide sole comfort that companies are remunerating ‘fairly and responsibly’ at the initial stage. What is needed to ‘counterbalance [any] imperfections’[26] is informed and active shareholder oversight of the process by which compensation decisions are made.[27] This naturally relies on disclosure. Pursuant to Recommendation 9.5, the Council notes that companies should disclose the names of remuneration committee members and their attendance at meetings of the committee.[28] Furthermore, it requires that the charter of the remuneration committee or a summary of the role, rights, responsibilities and their membership requirements, be made publicly available.[29] Finally, in efforts to allow for active participation in the process, Recommendation 9.4 indicates that shareholders approve the thresholds on which the payment of equity-based executive remuneration is made. In this regard, shareholders, as equity participants, are able to ensure that the equity-based remuneration of executives conforms to the pay-for-performance policy approach.

5. Outcome

Whether companies remunerate ‘fairly and responsibly’ is a matter that can equally be assessed by the outcome of the remuneration process. Outcome, for this purpose, essentially refers to the directors’ and executives’ actual remuneration amounts or payments. In this case, the most appropriate means of determining if these outcomes are sufficient and reasonable is through its disclosure. Disclosure itself provides valuable insight into the remuneration policies themselves. It similarly permits shareholders to judge whether the remuneration amounts adequately mirror these policies. But the ability to convey meaningful information that matters most to shareholders depends on the extent of its disclosure.

Pressure for increased disclosure has intensified, particularly after the recent experience of high profile corporate collapses in Australia, coincident with existing concerns over the level of executive remuneration. The Council’s support for a ‘full disclosure’ regime highlights efforts to respond to these calls for more disclosure. However, as noted earlier, quantity is no substitute for quality. Fundamentally, whether or not the Council’s recommendations are conducive to an effective disclosure environment will in turn affect shareholders’ evaluation of outcomes relative to processes. According to Hill, ‘[a]dequate disclosure is widely recognised as the linchpin in effective regulation of director and executive remuneration and good corporate governance practices.’[30]]

A. Content of Disclosure

(i) Directors and Executives

Under Recommendation 9.1, the Council clearly defines the individual(s) for whom the disclosure of remuneration applies. A distinction is made between directors and (non-director) executives. This enables consistent reporting and enhances the value of remuneration information to investors. Identifying executives as non-directors allows more scope in determining and assessing those individuals who make important management decisions.[31] Nonetheless, the Council makes reference to the five highest-paid executives. Depending on the size of a company, the limitation to five executives may restrict the ability of shareholders to properly evaluate both individual and company performance. Clyne argues that this may result in the disclosure of some and not all executives’ remuneration.[32] Disclosing a limited range of key decision-makers may ignore the fact that other executives, outside the five highest-paid, are integral to a company’s performance as a going concern.[33]

(ii) Remuneration amounts

In the spirit of ‘full disclosure’, the Council recommends (R9.1) the disclosure of all elements of remuneration, both monetary and non-monetary.[34] This falls under the same tradition as the disclosure requirements pursuant to s300A of the CL. However, the Council’s recommendations are more advanced as they outline in detail the elements of remuneration.[35] This includes salary, fees, non-cash benefits, bonuses, superannuation contributions, shares and options granted, as well as sign-on payments.[36]

The disclosure of all elements of directors’ and executives’ remuneration allows for a greater level of transparency, which ‘underpins the quest for an adequate disclosure regime for executive and director remuneration.’[37] Not only does it represent information that shareholders have ‘a legitimate interest in knowing’,[38] but it reinforces disclosure as a means of controlling agency conflicts. As Brooks et al argue, ‘[a]n adequate disclosure regime provides a mechanism for shareholders to judge the degree of divergence in managers’ and shareholders’ interest.’[39] It does this by allowing shareholders and investors to evaluate the extent to which remuneration is performance-related, unlike experiences in the past, where executives in Australia have been offered generous payments despite a company’s poor performance.[40] This rather tenuous link between pay and performance among Australian companies is similarly supported by empirical evidence.[41]

B. Form of Disclosure

(i) Standardisation

The form of disclosure can be just as important as the information itself. As Blair and Ramsay argue, ‘[e]ffective disclosure should simplify and standardise the presentation of information to make it more comprehensible.’[42] Although the ASX Council supports the disclosure of the individual elements of remuneration, it makes no effort to suggest how best to present that information. It seems peculiar that the recommendations of the Council go so far as to advocate a philosophy of full disclosure, yet it neglects to address an issue as fundamental as the form in which that full disclosure should exist. In the US[43] and UK,[44] for instance, a detailed tabular presentation of each element of executives’ and directors’ remuneration is required. A tabular format provides clear and accurate information, enabling shareholders to conduct an efficient comparative analysis.[45] In the absence of any guidelines similar to that of the US and UK, the disclosure of directors’ and executives’ remuneration, under the Council’s recommendations, may lack comparative value. This in turn will undermine the consistency in reporting and therefore the quality of the disclosure.

(ii) Valuation

Each element of remuneration should be disclosed according to an objective valuation measure. This relates particularly to bonuses, profit-shares, shares issued and options granted. The Council favours the valuation of bonuses and profit shares on an accrual basis, regardless of payment date, therefore providing an objective and timely measure. This accounts for the fact that bonuses may not necessarily be paid when they are due. As such, shareholders may not be as surprised if an executive, for example, receives a large bonus amount that can be simultaneously identified with a bonus that was awarded in the past.

In relation to share-based remuneration, the Council recommends that the value of shares and options be disclosed according to an established and recognised method of valuation.[46] In this respect, the proposal offers companies the flexibility in valuing the shares and options of their directors and executives. On the other hand, offering companies a choice of valuation methods may ultimately affect the consistency in reporting across companies. This not only harms the comparative value of the information disclosed — it also undermines an adequate disclosure regime. There should essentially be a uniform method of valuation for shares and options that will better assist shareholders in utilising the information more efficiently for comparative purposes. The Australian Accounting Standards Board has released an Exposure Draft that aims to bring the issue of remuneration in line with international standards including the valuation of options.[47] An international exposure draft[48] dealing with share-based remuneration is similarly being reviewed. In either case, the recommendations of the Council concerning share-based remuneration will need to be revised, to achieve consistency, once an accounting standard has been implemented.[49]

(iii) Disclosure in Annual Report[50]

In another related matter, the Council indicates that the disclosure of the information based on its recommendations should be included in the corporate governance section of a company’s annual report. Given that this particular section of the annual report is not audited, it may similarly influence the quality of information disclosed. However, the extent of this is not definite.

C. Timing of Disclosure

(i) Annual and continuous disclosure

Any effective disclosure regime must pay regard to the issue of timing. This will undoubtedly have a significant influence on its quality. The disclosure of the Council’s recommendations on best practice in companies’ annual reports represents historical information. Given that these reports may not necessarily account for any changes made to remuneration agreements, the quality of the disclosure may be limited. With this in mind however the continuous disclosure requirements of the ASX may operate to improve the issue of timeliness in relation to the Council’s proposals. According to the Council, employment agreements, or obligations under those agreements, may trigger a continuous disclosure obligation under ASX Listing Rule 3.1.[51] Incidentally, any disclosure to the market should include a summary of the main elements and terms of the agreement.[52]

The continuous disclosure obligations in this case are a significant development toward an effective disclosure regime.[53] They contribute to an environment of openness in the remuneration process and its outcomes. Shorten argues that the nature of the process and the structure of remuneration packages suffer from certain instabilities.[54] Applying the Council’s recommendations to continuous disclosure requirements serves to enhance the quality of disclosure in terms of its timeliness and relevance. Here the adjustment of remuneration contracts reflects practical and commercial realities that may not be captured in the annual reports. Timely disclosure also operates to ‘eliminate surprise’, as the Council suggests.[55] Disclosing entitlements at the time they are agreed, for instance, may reduce shareholder concerns about executive payments.[56]

The continuous disclosure process can also limit the quality of disclosure. First, it may influence shareholders to adopt a short-term view of pay versus performance. While agreements may change, this should not detract from the long-term performance objectives of the company. Second, companies may only satisfy the minimum disclosure that is required to inform the market, potentially omitting other relevant information. Finally, there is still the thorny issue of whether particular information concerning executive remuneration will be sensitive enough to have a ‘material effect’ on the company’s share price that forms the basis of the continuous disclosure rules under Listing Rule 4.10.3.

D. Policy Issues

The Council’s philosophy of full disclosure has operated to increase the level of transparency in the remuneration process. As Quinn remarks, ‘[d]isclosure allows a more accurate appraisal of board performance by giving shareholders as much information as possible about remuneration and remuneration policies.’[57] But while privacy arguments may be raised against the disclosure of all elements of directors’ and executives’ remuneration, for example, public considerations far outweigh the privacy considerations.[58] Among these public considerations, the most important is the prevention of self-dealing and conflict of interest.[59] Nonetheless, apart from allowing shareholders to monitor their behaviour, the disclosure of directors’ and executives’ remuneration, including its individual components, involves information that shareholders have a legitimate interest in knowing.[60]

Although the proposals, by their nature, are only guidelines, the full disclosure approach ensures that companies are both accountable and open with their remuneration processes. This remains the case whether companies adopt the proposals or not. If not, shareholders must be informed of why a company has departed from the Council’s benchmark for best practice. Allowing for transparency, in this regard, is consistent with a major policy approach of the Council — maintaining investor, as well as public, confidence.[61]

6. Conclusion

The recommendations of the ASX Corporate Governance Council in relation to remuneration are indeed a significant development for corporate governance practices in Australia. Allowing shareholders and investors to view the remuneration process and its outcomes through a wider lens of disclosure enhances the correlation between pay and performance. The Council’s key recommendations, such as remuneration committees and the complete disclosure of remuneration components, adequately provide for companies to remunerate ‘fairly and responsibly’. Moreover, they represent an approach that is consistent with international standards of best practice. However, issues such as those concerning the form of disclosure indicate the extent to which the recommendations do not provide a complete solution to the inherent problems of executive remuneration. They do, on the other hand, signal an improvement. Increased transparency has contributed to a more accountable and open pay-setting process. Nonetheless, the landscape of corporate governance in this area is still evolving in Australia, and while a positive step forward has been made with the release of the Council’s ASX Report, we can only hope that the next step is in the same direction.


[*] Final year student, Faculty of Law, University of Sydney.

[1] The ASX Corporate Governance Council was formed in August 2002 for the purpose of developing a framework for best practice that would apply to listed companies in Australia.

[2] As the ASX Corporate Governance Council Chairperson, Karen Hamilton, stated: ‘[t]his is a great step forward for governance practices in Australia ...’ ASX Corporate Governance Council, Principles of Good Corporate Governance and Best Practice in Australia, Media Release (31 March 2003).

[3] ASX Corporate Governance Council, Principles of Good Corporate Governance and Best Practice Recommendations (Sydney: Australian Stock Exchange, 2003) at 3 (hereinafter ASX Report).

[4] ASX Listing Rule 4.10.3 was amended on 1 January 2003. Following its amendment, companies must report the extent to which they have adopted the ASX Corporate Governance Council’s recommendations. If they have not adopted the recommendations companies must then identify those recommendations and provide reasons for not complying with them.

[5] This system of disclosure is similar to that adopted in the UK under the Cadbury Code of Best Practice. The Cadbury Committee was set up to report on corporate governance practices, primarily on the control and reporting functions of boards and the role of auditors. In its December 1992 report, it recommended that UK listed companies state in their annual report whether the company had complied with the Code and identify and give reasons for any areas of non-compliance. Following this recommendation, the London Stock Exchange amended its listing rules to require UK listed companies to comply accordingly. See Alice Belchier, ‘Regulation by the Market: the Case of the Cadbury Code and Compliance Statement’ [1995] JBL 321.

[6] ASX Report, above n3 at 5.

[7] Id at 51.

[8] The Greenbury Committee was formed in January 1995 to identify good practice in determining directors’ remuneration and prepare a Code of Best Practice for UK public companies. It released a report in July 1995 outlining its recommendations. These were subsequently incorporated into the listing rules of the London Stock Exchange.

[9] Greenbury Committee, Directors’ Remuneration: Report of a Study Group chaired by Sir Richard Greenbury (London: Gee Publishing, 1995) paras 6.5–6.7 (hereinafter Greenbury Report).

[10] ASX Report, above n3 at 51.

[11] Greenbury Report, above n9. Hill argues that the ‘full disclosure’ proposal of the Greenbury Committee was a radical departure from the traditional disclosure requirements in England and Australia, which it viewed as manifestly inadequate: Jennifer Hill, ‘“What Reward Have Ye?” Disclosure of Director and Executive Remuneration in Australia’ (1996) 14 C&SLJ 232 at 244.

[12] The Parliamentary Joint Statutory Committee on Corporations and Securities (now the Joint Committee on Corporations and Financial Services) in its inquiry into the Company Law Review Act 1998 stated that the overriding principles in respect of directors’ and executives’ remuneration are those of accountability and openness: PJSC, Report on Matters Arising from the Company Law Review Act 1998 (Canberra: Senate Printing Unit, 1995) at para 14.45.

[13] See Andrew Defina, Thomas C Harris & Ian M Ramsay, ‘What is Reasonable Remuneration for Corporate Officers? An Empirical Investigation into the Relationship Between Pay and Performance in the Largest Australian Companies’ (1994) 12 C&SLJ 341.

[14] Hill, above n11 at 237.

[15] Greenbury Report, above n9 at paras 4.3–4.7. The Report recommended that Boards of Directors set up remuneration committees of Non-Executive Directors as a means to avoid potential conflicts of interest, among other purposes.

[16] Albie Brooks, Keryn Chalmers, Judy Oliver & Angelo Veljanovski, ‘Issues Associated with Chief Executive Officer Remuneration: Shareholders’ Perspectives’ (1999) 17 C&SLJ 360 at 364.

[17] In a study that examined the views and attitudes of individual shareholders on agency costs and disclosure issues in relation to executive remuneration in Australia, the use of remuneration committees was strongly supported by the respondents. Id at 364–365.

[18] In its commentary and guidance, the Council recommended that the remuneration committee should:

• consist of a minimum of three members, the majority being independent directors; and

• be chaired by an independent director: ASX Report, above n3 at 54.

[19] Id at 54–55.

[20] Ian Ramsay, ‘Directors and Officers’ Remuneration: The Role of the Law’ [1993] JBL 351 at 373.

[21] Hill, above n11 at 235.

[22] Ibid. See also Joshua A Kreinberg, ‘Reaching Beyond Performance Compensation in Attempts to Own the Corporate Executive’ (1996) 45 Duke LJ 138 at 161–162.

[23] Charles M Yablon, ‘Overcompensating: The Corporate Lawyer and Executive Pay’ (1992) 92 Columb LR 1867 at 1873.

[24] Graef Crystal, In Search of Excess (1991), cited in Yablon, id at 1877.

[25] Ibid.

[26] Hill, above n11 at 235.

[27] Yablon, above n23 at 1889.

[28] ASX Report, above n3 at 56–57.

[29] Id at 57.

[30] Hill, above n11 at 232.

[31] This is in contrast to s300A(c) of the Corporations Law 2001 (Cth) (‘CL’), where the disclosure of emoluments relates to each ‘director’ and each of the five named ‘officers’ of the company. By definition, the term ‘officer’ under s9 of the CL, includes director. No guidance however is available in the Corporations Law as to whether directors and officers, for the purpose of s300A, should be treated as mutually exclusive. This affects the consistency and quality of disclosure.

[32] Shaun Clyne, ‘Modern Corporate Governance’ (2000) 11 AJCL 276 at 289.

[33] Ibid. In its recommendation, the ASX Corporate Governance Council agreed as a matter of priority to examine the need for additional disclosure, including for a wider range of executives: ASX Report, above n3 at 53.

[34] ASX Report, above n3 at 52. The Greenbury Report similarly gave full support to the delineation of all elements of the remuneration package: Greenbury Report, above n9 at paras 5.8–5.12.

[35] The failure of s300A(1)(c) to clarify what the ‘elements of emoluments’ constitute highlights the lack of certainty in the provision which undermines its efficacy. See Michael Quinn, ‘The Unchangeables — Director and Executive Remuneration Disclosure in Australia’ (1999) 10 AJCL 89 at 104.

[36] These are articulated in ‘Box 9.1: Disclosure of remuneration policy and procedures’, which provide guidance to Recommendation 9.1 of the report.

[37] Brooks et al, above n16 at 366. In contrast to the approach of the Council, the disclosure of executive remuneration under Australian accounting standards, AASB 1017 and AASB 1034, is based on an aggregate amount. This fig-leaf approach to disclosure lays open the possibilities to self-dealing and abuse which are symptomatic of the classic agency problem.

[38] Hill, above n11 at 241.

[39] Brooks et al, above n16 at 366. See also Hill, id at 237.

[40] The payment of $13.2 million to George Trumbell, former CEO of AMP Ltd, was one of the largest severance payments in Australian commercial history. This was despite the disastrous takeover of GIO Insurance Ltd that led to his departure. See Kristen Svoboda, ‘Corporate Governance Issues Arising from the AMP–GIO Takeover’ (2000) 18 C&SLJ 395. In another case, a $2.5 million payment was made to the retiring CEO of Pacific Dunlop who presided over the company during a period when net profit had fallen by 45 per cent: Margot Saville, ‘Executives Parting is Sweet Sorrow’ Sydney Morning Herald (20 October 2001) at 49.

[41] See Defina at al, above n13.

[42] Blair & Ramsay (1994) in Hill, above n11 at 243–244.

[43] Regulation S-K of the SEC’s rules. Regulation S-K is included as part 229 in the Code of Federal Regulations and applies to public-traded companies that are registered with the SEC.

[44] London Stock Exchange Rule 12.42.

[45] Hill, above n11 at 246.

[46] It is interesting to note that there is no requirement to disclose the value of options under Australia’s current disclosure regime.

[47] Exposure Draft (ED) 106 was issued in May 2002. It proposes to significantly increase the disclosures of directors’ and executives’ remuneration.

[48] The objective of this second exposure draft if it becomes an international standard is to ensure that an entity recognises all share-based payment transactions in its financial statements, measured at fair value, so as to provide high quality, transparent and comparable information to users of financial statements. See International Accounting Standard Board, Exposure Draft 2: Share-Based Payment (2002) at 16 (hereinafter ED 2).

[49] The International Accounting Standards Board (IASB) is presently considering the comments received on ED 2. It plans to finalise this process by the end of 2003. Assuming this is achieved, an International Financial Reporting Standard (IFRS) will be effective for periods beginning on or after 1 January 2004. There is support for the adoption by Australia of International Accounting Standards by 2005, particularly for the next phase of CLERP 9. If this occurs, it will naturally affect the outcome of Australia’s ED 106.

[50] The Council have stated that the disclosure requirements of its recommendations applies to the company’s first financial year commencing after 1 January 2003: ASX Report, above n3 at 6.

[51] ASX Report, above n3 at 5 and 53. ASX Listing Rule 3.1 states that ‘[o]nce an entity is or becomes aware of any information concerning it that a reasonable person would expect to have a material effect on the price or value of the entity’s securities, the entity must immediately tell ASX that information.’ Listing Rule 3.1A provides exceptions to this requirement that focus on the nature of the information, for example, if the information is an incomplete proposal or negotiation or a trade secret.

[52] Ibid.

[53] Kohler notes that the continuous disclosure rules ‘[are] the most significant aspect of the remuneration disclosure section of the principles of good corporate governance’: Alan Kohler, ‘New Rules for Chief Executive Pay’ Australian Financial Review (1 April 2003) at 1 and 6.

[54] Richard L Shorten, ‘An Overview of the Revolt Against Executive Compensation’ (1992) 45 Rutgers LR 121 at 141. He adds for instance that ‘[incentive] plans can be modified and reformulated until they lose almost all sensitivity to long-term performance’ (at 140).

[55] ASX Report, above n3 at 53.

[56] Ibid.

[57] Quinn, above n35 at 92.

[58] Ibid.

[59] According to Hill, ‘it is well accepted that director and executive remuneration is one of the classic areas in company law where the interests of management and shareholders may diverge and conflict’: above n11 at 237.

[60] Id at 241.

[61] ASX Report, above n3 in Foreword.


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