Boards told not to try to dodge the ‘two strikes’ rule on executive pay.

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BOARDS that try to dodge the ”two strikes” rule on executive pay will only spark calls for tougher regulation from Canberra, the parliamentary secretary to the Treasurer, David Bradbury, has warned.

With relations between investors and boards sinking in recent weeks, Mr Bradbury yesterday also hit back at claims from business veteran Don Argus, who has said investors could simply sell their shares if they objected to executive pay.

Under rules introduced in July, shareholders can force a board spill if more than a quarter of votes oppose the remuneration report for two years in a row. Although the rule has yet to produce its first ”strike”, Metcash narrowly avoided this fate last month after it took the unusual but legal step of not displaying the proxy vote count at its annual general meeting. It later emerged that 24.57 per cent of proxy votes were against the remuneration report, and shareholder activists said they could have inflicted a strike had they been aware of this.

Without naming Metcash, Mr Bradbury yesterday warned boards against playing ”games” to avoid the crackdown on executive largesse. ”Holding back information from shareholders to avoid having them express their views on executive pay undermines confidence in boards and feeds shareholder suspicion that remuneration outcomes may not be justified,” Mr Bradbury said. This kind of game-playing was not in the spirit of the government’s reforms and would only alienate shareholders further.

While he said most companies were acting in the spirit of the reforms, boards that tried to dodge the rules would only prompt calls for tougher regulation.

”I believe that most companies will approach the new executive remuneration reforms in good faith because doing so has a demonstrably positive impact on the company’s reputation and value,” Mr Bradbury said. ”But those companies who fail to act in this way serve only to increase the calls on government to extend the heavy hand of regulation to areas where it is perceived that deficiencies may exist.”

The ”two strikes” policy has been bitterly opposed by company directors and former BHP chairman Argus last week stoked more controversy by telling investors to sell their shares if they objected to executive pay.

Mr Bradbury said he had been ”astonished” by such comments, saying they were outdated and ”a poor advertisement for any company seeking to attract capital in equity markets”.
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