In December 2012, an Exposure Draft of the Corporations Legislation Amendment (Remuneration Disclosures and Other Measures) Bill 2012 (“2012 Bill”) was released to modify the Corporations Act 2001. The motivation behind this amendment is to require ASX-listed companies, whose financial statements have been materially misstated, to reveal in their remuneration reports whether any overpaid remuneration to key management personnel has been clawed-back, and if not, to provide an explanation (“if not, why not”).
At present, only financial institutions, such as banks and insurance companies, who are policed by the Australian Prudential Regulation Authority (“APRA”), are required to contain clawback provisions for unvested incentives in their remuneration frameworks.
However, as indicated in our 2012 Australian Proxy Season Review, 15% of the companies in our coverage universe disclosed some type of clawback provisions in their remuneration policies, up from 11% and 7% in 2011 and 2010, respectively.
We believe this year-on-year increase is due to a number of non-financial institutions willingly introducing clawback provisions in their remuneration structures ahead of the legal requirement to do so, thus also being early adopters of what we view as emerging best market practice.
The Exposure Draft is subject to a consultation period that ended on March 15, 2013. Subsequently, the 2012 Bill would, if approved by the Government, apply to directors’ reports with financial years starting on or after July 1, 2013.