Federal Treasurer may force executives to pay back bonuses - The Australian - 2010 April 16

http://www.theaustralian.com.au/business/australian-government-throws-support-behind-productivity-commission/story-e6frg8zx-1225854489478

THE Rudd government is exploring measures to "claw
back" bonuses paid to executives who have profited after the release of
misleading information, in an unprecedented hardening of its crackdown on
executive pay.

In an otherwise overwhelmingly supportive response to the
Productivity Commission's final report on executive remuneration, Corporate Law
Minister Chris Bowen said there may be an anomaly in the law that restricts
shareholders from recovering bonuses based on misleading statements.

“I believe that is a potentially significant concern,” he
said at a media conference in Sydney.

“I do recognise that there has not been any known instances
in recent times of this occurring in Australia, but we do need to ensure that
the law is robust as possible in dealing with potential fraud in relation to
misstatements of financial records and implications for bonuses.

The PC's 500-plus page report, released in January, revealed
that the chief executives of the top 20 publicly listed companies were paid an
average $7.2 million last year - 110 times the average wage.

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Misleading info to cost directors Perth Now, 5 days ago

“The government understands why there is anger and concern
in the community about the most excessive instances of executive pay, and
recognises the importance of putting in place policies that promote
transparent, accountable and responsible remuneration practices,” said
Treasurer Wayne Swan today.

The government would now draft legislation and release it
for exposure before being introduced this year, effective from July 1 next
year.

“These reforms will also ensure that Australia's regulation
of director and executive remuneration remains at the forefront of
international best practice,” said Mr Bowen.

But in a hardening of policy following its crackdown on
“golden handshakes” last year, the government said it would also explore its
additional clawback proposal not recommended by the PC.

“If it is revealed that the financial statements are
materially misstated, there is concern about the capacity to recover (or 'claw
back') performance-related bonuses paid to executives,” the government's
response to the PC said.

“For example, the company's share price may be artificially
inflated due to the misstated financial information. During this period, directors
or executives may have received larger bonuses as a result of the company's
artificially high share price.”

Mr Swan said the government would undertake consultation and
release a discussion paper on the proposal.

The government, which commissioned the inquiry into
directors' pay last March in the heart of the global financial crisis, accepted
all but one of the PC's 17 recommendations, and suggested the strengthening of
several.

One of the report's most contentious issues - the “two
strikes” proposal that would force boards to face re-election if their
remuneration report was rejected by 25 per cent or more of shareholders over
two consecutive years - also drew support from the government today.

Upon two rejections, directors would face a third vote,
which would require the support of at least 50 per cent of shareholders, a move
welcomed in January by the ASX but drawing a lukewarm response from other
sectors of business.

“I think it's appropriate,” said Mr Bowen.

“I acknowledge and accept that the Business Council and
others may have a different view.

“We've considered those views but we accept the
recommendation.”

The government also wants the PC's recommendation that
directors not be able to vote on a company's remuneration report strengthened
to include close family members. Similarly, a recommendation to restrict
directors' hedging of pay packet incentives should include family members, Mr
Bowen said.

The one proposal the government did not support was the removal
of the cessation of employment as a deferred employee share scheme taxing
point.

“The Treasury and the Tax Office have given the government
very significant advice this would raise very significant integrity issues with
the tax base,” said Mr Bowen.

“We've also received advice that this could cost between
$230-310 million over the forward estimates.”

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