Remuneration committees: all change, please

By John Elliott.

Key Points:
From 1 July 2011, all S&P/ASX 300 entities will be required to have a remuneration committee composed entirely of non-executive directors.

The change is contained in a new listing rule released by ASX this week. In addition, from 1 January next year, all listed entities will have new reporting requirements relating to remuneration committees.

Until now, the composition of listed entity remuneration committees was a matter for the entities themselves. However, in the wake of the Productivity Commission report on executive remuneration, ASX began looking at ramping up its requirements for remuneration committees, with particular emphasis on their composition.

The result has been the aforementioned requirement for S&P/ASX 300 entities and a new reporting requirement for all listed entities.

For many years, listed entities have only had to report whether or not they have a remuneration committee (and if not, why not). For financial years beginning on and after 1 January 2011, they will also have to report whether that remuneration committee is composed of a majority of independent directors, is chaired by an independent director and has at least three members.

In summary:

• all listed entities will have to report on the composition of their remuneration committees (if they have one) for financial years beginning in 2011;
• S&P/ASX 300 entities will also have to have remuneration committees composed solely of non-executive directors from 1 July 2011; a "non-executive director" is not necessarily an independent director, so these entities will separately have to address the issue of independence when compiling their annual corporate governance reports.

For further information, please contact John Elliott.