Directors of 108 companies face sack over 'second strike' pay rule

THE annual general meeting season, which begins next month, could find more than 500 directors on 108 public company boards ejected from their positions. Confusion is growing over the proper implementation of the ''second strike'' rule on remuneration reports.

The warning from Chartered Secretaries Australia comes as some of the sharemarket's biggest companies, including BlueScope Steel, Crown, Pacific Brands and Perpetual, must grapple with the administrative and legal nightmare surrounding the new corporate governance regulation.

Last year's botched introduction by the federal government of the controversial two-strikes rule on executive pay means public companies will face a complete spill of their board if they receive a second protest vote of 25 per cent or more on their remuneration report at the shareholders meeting this year.

The CSA chief executive, Tim Sheehy, said companies that recorded a ''first strike'' against their remuneration report last year will have to put a resolution to shareholders to move to a spill meeting this year, even though such an extraordinary general meeting might not eventuate.

''Adding to the confusion is the fact that the chair may have to call a poll to vote on whether to spill the board before it is even known if shareholders have voted 'yes' or 'no' on this year's remuneration report,'' Mr Sheehy said.

The recording of a second strike under the legislation means a company must hold a spill resolution meeting, where shareholders will be asked if they want to consider a complete spill of the board, he said. Only then can a meeting be held to actually turf out directors. ''How companies explain to their shareholders that the results of such a poll might end up being irrelevant will be a challenge,'' he said.

A string of companies notched up their first strike last year in the wake of bloated executive salaries and lacklustre profit results. Five of the top 100 companies, including News Corporation, received a protest vote of 25 per cent or more. Among the top 200, 14 boards received strikes, rising to 26 among the top 300.

These companies include GUD Holdings, UGL, Watpac, Cabcharge, Austin Engineering and Arafura Resources. News Corporation did not formally incur a ''strike'' because it moved its registered office to the US.

Steve Burrell, spokesman for the Australian Institute of Company Directors, said the practical outcome of the new rules was that boards that received a first strike last year have spent ''an inordinate amount of time'' dealing with the issue.

''The amount of resources, brain power and time being devoted to the issue by boards is clearly something which has come to pass … for smaller companies that occupies even more of their available time,'' he said.

Mr Burrell also said the relatively low bar at which the strike occurs meant there was potential for a relatively small group of shareholders to have a disruptive impact on companies.

He called on remuneration reports within annual reports to be made more transparent to help shareholders make more educated votes on the exact size of executive take-home pay.

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