CEO remuneration : a comparative study of the operationalisation of disclosure and say on pay laws in Australia, the USA and Japan

Abstract

In the years since the global financial crisis (GFC) in 2008 there has been increased scrutiny of Chief Executive Officer (CEO) remuneration packages in Australia, the United States of America (USA) and Japan. The respective parliaments in these countries introduced laws to increase corporate disclosure practices and shareholder engagement. However, shareholders do not consider the legislative regime, the actions of regulators, or the judiciary to be effective monitors of corporate behaviour. There is a common belief that the design of CEO remuneration packages can encourage excessive risk-taking by CEOs and that this, to some extent, contributed to the GFC and to corporate failures around this time. The subsequent lack of public and investor trust in the operations of corporations and the wider perception that a lack of transparency exists around CEO remuneration makes it difficult for shareholders to determine whether the remuneration is appropriate. This thesis examined the operationalisation of disclosure and say on pay (SOP) laws in the top 20 publicly listed companies in Australia, the USA and Japan from 2005 to 2015. Disclosure and SOP are regulatory tools that play an important role in corporate governance. Disclosure laws have evolved in Australia, the USA and Japan to enhance transparency and accountability, increase investor protection, strengthen the national economy, and improve corporate governance. Both disclosure and SOP laws require companies to disclose the remuneration of the CEO and other senior executives. SOP laws are designed to empower shareholders to approve or reject the remuneration policy of the company in which they invest. In Australia and the USA, SOP laws are non-binding; whereas, in Japan SOP laws are binding, but not all companies disclose CEO remuneration due to the unique nature of the country's corporate governance practices and social norms. The researcher examined the operationalisation of the disclosure and SOP laws in each of these countries against this background. The present study examined the operationalisation of disclosure and SOP laws in Australia, the USA and Japan by analysing the annual reports of the top 20 publicly listed companies in each country and the relevant existing literature. The study sought to test the following four hypotheses to determine whether there is the need for more government regulation in each national setting: "¢ disclosure practices will promote transparency and accountability; "¢ disclosure practices will improve the link between CEO remuneration and company performance; "¢ SOP will create shareholder wealth; and "¢ SOP will restrain increases of CEO remuneration. This study found that disclosure and SOP laws in Australia and the USA have enhanced transparency, board accountability and shareholder engagement. Further, this study found that SOP laws in Australia appear to have restrained increments in CEO remuneration levels. In the USA, there is no notable reduction in CEO remuneration levels. By comparison, the application of the laws in Japan has increased transparency, although only half of the top 20 publicly listed companies disclosed individual CEO remuneration payments, and remuneration levels increased in those companies over the study period. Lastly, a key finding of this study is that distinctions in corporate governance practices in Japan and those of Australia and the USA may be diminishing, as Japanese companies appear to be gradually adopting an Anglo-American style of corporate governance. The researcher has concluded from these findings that Australian and the American companies may benefit from stakeholder approaches by balancing the interests of all stakeholders, particularly employees and customers. Comparably, Japanese companies may benefit from enhanced disclosure and SOP laws through increased board monitoring and transparency in financial markets, and through quantifiably better corporate performances. Consequently, this will increase Japanese companies' access to capital and may subsequently result in a stronger Japanese economy. directors of companies increase the focus on managing the company in the best interests of all stakeholders to achieve long-term economic sustainability. Finally, the operationalisation of disclosure and SOP laws in the selected Australian, American and Japanese companies demonstrated complexities and weaknesses that require enhanced board oversight of the CEO and enhanced CEO oversight of employees to further improve transparency and accountability. This study recommends that the weaknesses not be closed by further government regulation but by the implementation of changes to corporate cultures and to the compliance systems within the respective companies.

Date of Award	2020
Original language	English