Shareholder voting is likely to be an effective way to curb excessive corporate pay packages, according to new research from The University of Queensland Business School.
The research indicates that the shareholder vote has already proved a key factor in linking boardroom pay more closely to performance over recent years. The new ‘two strikes’ rule introduced earlier this year has now given shareholders even greater influence.
UQ Business School researchers, Professor Peter Clarkson, Associate Professor Julie Walker and Shannon Nicholls examined executive pay at 240 ASX-listed firms between 2001 and 2009 and looked at how closely it was linked to the company’s performance.
Professor Peter Clarkson said it was critical to examine this period from a regulatory perspective.
“These nine years saw major regulatory changes including new rules on the disclosure of boardroom pay packages, the introduction of the shareholder vote on pay and wider corporate governance reforms,” Professor Peter Clarkson said.
The researchers found that the relationship between pay and performance became stronger over this period, with greater transparency on pay and the shareholder vote considered as the main reasons for this. The average ‘no’ vote on the remuneration report increased steadily from 5.4% in 2005, the first year of the vote, to 11.4% in 2009.
Associate Professor Julie Walker said the shareholders’ vote was initially non-binding but the ‘two strikes’ rule now gives shareholders the opportunity to remove directors if the company's remuneration report receives a "no" vote of 25 per cent or more at two consecutive AGMs.
“The research findings have important implications for Australian regulators and company directors,” Associate Professor Walker said.
“Shareholders are increasingly voicing their concerns about excessive executive pay and have used their vote to protest about inappropriate pay packages. The ‘two strikes’ rule gives them an even stronger say on pay and there is every reason to believe that they will use it.”
The researchers said that company boards must listen closely to what shareholders have to say and respond accordingly or risk their own position.
“Transparent and careful disclosure about remuneration are more critical this reporting season than ever before,” Associate Professor Walker said.
Media: Samantha Kennerley, UQ Business School Marketing & Communications Manager, P: 07 3346 8068, M: 0433 130 085 or E: s.kennerley@business.uq.edu.au
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