On Monday night the Senate passed the Two Strikes Rule in relation to Executive Remuneration. The new rules take effect from 1st July 2011 and are designed to address concerns over excessive remuneration. Previously, shareholders have been asked to vote on remuneration issues however the results have not been binding on boards. Commencing next month, shareholders of listed companies must vote on whether to spill all Board positions if 25% or more “NO” votes are cast in two successive AGM’s.
So lets break that down; if during the next AGM season a company receives 25% or more “NO” votes for a remuneration report, the following AGM will contain a resolution for a board spill vote IF that remuneration report receives a 25% “NO” vote for a second time. If the 25% “NO” vote does occur a second time, the meeting will vote on a decision to hold a spill vote within 90 days. The spill vote acts as a safety valve in that two successive “NO” votes do occur. Boards will have plenty of warning that an issue exists after the first AGM and have a year to resolve contentious issues before they appear before the next AGM. Shareholders will then have to reconvene within 90 days to vote on the board spill vote. A minimum of 3 Directors including the Managing Director must remain to maintain continuity. Get ready for a lot of news flow here; this will get a lot of press during the AGM season from October.