Q: I am a Computershare shareholder and will be attending the company’s annual general meeting next month. At last year’s AGM the company received a first strike after there was a large vote against its remuneration report. What will happen if the same thing happens this year?
A: If 25 per cent or more of the shareholder votes cast at a listed company’s annual general meeting oppose the adoption of the remuneration report, the company has a “first strike” recorded against it.
A vote against the remuneration report the next year is counted as a second strike. Following a second strike a spill resolution must be put to shareholders at the same meeting. A spill of the board will occur if 50 per cent or more of eligible voters are in favour.
A spill meeting must be held within 90 days of a passed spill motion. If the spill motion is not passed the slate is wiped clean.
In addition to Computershare, some of the companies that received a strike at last year’s AGMs were ANZ, Austal, Brickworks, Clean Teq Holdings, Emeco Holdings, Goodman Group, Harvey Norman, Karoon Energy, Mineral Resources, Myer, NAB, Tabcorp, Telstra and Westpac.
Of those, two were second strikes – Myer and Karoon. One, Mineral Resources, was a third consecutive strike.
The two-strikes rule was introduced in 2011, with the aim of increasing directors’ accountability to shareholders on executive pay issues, which are often contentious. However, the vote against adoption of the remuneration report can often be seen as a more general protest vote against the company’s performance or its handling of a particular issue.
The two strikes rule restricts the ability of key management personnel (directors and senior executives) and their related parties to vote on the remuneration report and other “remuneration-related” resolutions (such as the spill motion).
Before the introduction of the rule, listed companies were required to put their remuneration report to a non-binding shareholder vote at the AGM.
According to a study, between 2011 and 2013, 306 companies (7.4 per cent of ASX-listed companies) received first strikes and 51 of them received a second strike. This resulted in 12 board spills.
Some of the changes that companies have made in response to first strike votes include: dropping plans to pay incentives where non-financial hurdles are met but financial hurdles are not; adjusting return on capital hurdles from peer-related measures to a financial hurdles; and moving short-term incentives into deferred or restricted equity.