Remuneration Committee

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The remuneration committee is established to ensure that remuneration

arrangements support the strategic aims of the business and enable the recruitment,
motivation and retention of senior executives while complying with the
requirements of regulatory and governance bodies, satisfying the expectations of
shareholders and remaining consistent with the expectations of the wider employee
population. This section of our site provides you with access to material on current
issues facing Australian remuneration committees, including checklists, guides and
a range of other useful publications relating to the committee’s operations and
responsibilities.

Current issues

Pay governance

For companies regulated under the Corporations Act

In response to community concern about excessive pay practices, the Government

asked the Productivity Commission to undertake a public inquiry into the
regulatory framework around remuneration of directors and executives of
companies regulated under the Corporations Act. This inquiry has now concluded
and the Commission has recommended improvements to the existing framework
governing remuneration practices in Australia. The final report was released on 4
January 2010 and the Government responded to this report on 16 April 2010.

 The Australian Government Response to the Productivity Commission's

Inquiry on Executive Remuneration in Australia: Released on 16 April 2010,
the Government's response supports nearly all of the Productivity
Commission's recommendations, including the "two strikes" proposal, and
aims to further strengthen several of the recommendations by expanding
their scope and enforceability.
 The Productivity Commission's inquiry report, Executive Remuneration in
Australia: Released on 4 January 2010, this report makes recommendations
to improve board capacities, reduce conflicts of interest, encourage
 stakeholder engagement, improve disclosure and ensure well conceived
remuneration policies. 

Copyright Productivity Commission 2010.

 The Productivity Commission's Executive Pay Inquiry: an update on the

issues: A presentation delivered at FINSIA in June 2009 by Gary Banks,
Chairman of the Productivity Commission.        Copyright Productivity
Commission 2009.

For APRA regulated institutions

The remuneration committee is responsible for overseeing the design and operation
of the organisation’s remuneration system. A key objective of this committee is to
ensure the risk in remuneration strategy, policy and arrangements is adequately
considered and that processes are in place to control unhealthy risk-taking. This is
particularly relevant for Australian Prudential Regulation Authority (APRA)-
regulated institutions.

 APRA Prudential Standard APS 510 Governance and Prudential Practice

Guide PPG 511 Remuneration: On 30 November 2009, APRA released final
versions of revised prudential standards APS510, GPS510 and LPS510
dealing with governance among regulated authorised deposit taking
institutions, general insurers and life insurers respectively.Copyright APRA
2009.
 Proposed extensions to governance requirements for APRA regulated
institutions: The proposed extensions to APRA’s prudential standards on
governance follow the recent release of international principles on sound
remuneration practices by the Financial Stability Forum (FSF). The APRA
discussion paper accompanies the draft governance standards and prudential
practice guide provided above. Copyright APRA 2009.
 Company Law & Governance Update: Update on the APRA remuneration
discussion paper by Blake Dawson.             Copyright Blake Dawson 2009

Senior executive remuneration

Employee share schemes

On 2 December 2009, the bills on the reform of employee share schemes (ESS)
were passed by both houses of the Australian Federal Parliament, without
amendment. The new law will impact existing and future equity grants to
Australian employees. The government says that they are intended to "ensure
taxpayers are taxed consistently regardless of the forms of remuneration they
receive". 

 Exposure draft package on the taxation of employee share schemes: Deloitte

provides an overview of the reforms proposed on 14 August 2009.
 Taxation of Employee Share Schemes: Federal government’s media release
on the final proposed changes to the tax treatment of employee share
schemes.
 Reform of the Taxation of Employee Share Schemes: Consultation paper
and exposure draft bill on the reform of the taxation of employee share
schemes jointly released by the Treasurer, the Hon Wayne Swan MP, and
the Assistant Treasurer, the Hon Chris Bowen MP.
 Impact of policy options paper on the tax treatment of employee stock plans:
The impact of the proposed changes is outlined by Deloitte’s remuneration
specialists.
 2009-10 Federal Budget - Proposed changes to employee share and option
plans: An overview of the proposed changes by Blake Dawson.
Copyright Blake Dawson 2009.
 Taxation of cross-border employee shares and rights: traps for the unwary:
Deloitte discusses taxation issues for assignees to or from Australia, who
hold shares or rights (options) under an employee share plan.

Termination payments

On 24 November 2009, the Federal Government introduced amendments to

provisions in the Corporations Act 2001 and corresponding Corporations
Regulations relating to termination payments. The final amendments clarify the
meaning of “base salary”, the new threshold above which termination payments to
company executives and directors must be approved by shareholders, and the types
of benefits that are (and are not) subject to shareholder approval. The amendments
also extend the rules to include senior executives and key management personnel
of a disclosing entity, require unauthorised termination benefits to be repaid
immediately, provide that retiree shareholders cannot participate in a vote on their
termination benefit (except as a proxy) and increase the penalties applicable to
unauthorised termination benefits.

 Governance alerts: Termination Payments

  Improving Accountability on Termination Payments: Press release and
speech by the Minister for Financial Services, Superannuation and Corporate
Law, the Hon Chris Bowen MP, on the introduction of the Bill.
 Corporations Amendment (Improving Accountability on Termination
Payments) Bill 2009: Exposure Draft
 Government releases Termination Benefits Reform Bill: An overview by
Blake Dawson.Copyright Blake Dawson 2009.
 Executive termination payments in Australia: An insight into current
termination payment practice in Australia by Deloitte’s remuneration
specialists.

The work of the remuneration committee

Aligning pay with performance

The remuneration committee should ensure remuneration arrangements focus

executives on achieving long-term business objectives and growth in shareholder
wealth. In satisfying this requirement, the committee should approve incentive
arrangements, including KPIs and performance hurdles.

 The risk of total shareholder return (TSR): This research paper by Deloitte’s

remuneration specialists provides a framework for boards considering
whether and how to use TSR as a performance measure for long-term
incentive plans.

Remuneration reporting

The remuneration committee is required to ensure the remuneration report is

prepared in accordance with legal disclosure requirements (s300A of the
Corporations Act 2001), ASX listing rules as well as the recommendations set out
in the corporate governance principles and recommendations, issued by the ASX
Corporate Governance Council. Remuneration committees can also use the
remuneration report to clearly communicate the commercial rationale behind
remuneration decisions and demonstrate alignment between company performance
and pay.

Financial year 2009 is the second year that auditors are required to opine on the
remuneration report’s compliance with s300A. This year remuneration reports will
also constitute the main source of executive remuneration data for government
agencies in Australia.
 Remuneration report assessment tool: This checklist sets out relevant
regulatory requirements, rules and guidelines for companies preparing their
remuneration report.