Responding to a remuneration report strike at an AGM in Australia.

A remuneration report strike at an annual general meeting (AGM) is not merely a procedural formality. Understanding what drives a strike, and what to do after one, is essential for directors, company secretaries and finance leads responsible for shareholder engagement and governance.

This guide explains how the two-strikes rule works in Australia, the most common reasons companies receive a strike, and the practical steps to take before the next AGM to reduce the risk of a second strike. The two-strikes rule only applies to companies listed on the ASX.

How the two-strikes rule works

Australian companies listed on the ASX are required to put their remuneration report to a non-binding shareholder vote at each AGM under the Corporations Act 2001. The vote is advisory rather than binding, meaning the board is not obliged to change its remuneration arrangements based on the outcome. However, the consequences of repeated against-votes are significant.

A first strike is recorded when 25% or more of votes cast are against the remuneration report resolution. The company is required to disclose this result with the AGM outcomes. At the following year’s AGM, if 25% or more of votes are again cast against the remuneration report, a second strike is recorded and the board is obligated to immediately put a spill resolution to shareholders at that same meeting.

A spill resolution, if passed by more than 50% of eligible votes, results in all non-executive directors (other than the managing director) ceasing to hold office, with fresh elections required within 90 days. In practice, spill resolutions rarely succeed: in 2024, none of the 13 second strikes in the ASX300 led to a board spill, with spill resolutions averaging under 7% support. Nonetheless, the reputational and governance disruption of reaching that point can be substantial.

Why companies receive a strike

Against-votes on remuneration reports reflect a range of shareholder concerns, and not always about remuneration alone. A strike can function as a broader protest vote, expressing dissatisfaction with company performance, governance quality or specific board decisions. That said, several remuneration-specific factors appear consistently among companies that receive a strike.

Incentive pay inconsistent with performance

Shareholders tend to scrutinise executive short-term incentive (STI) and long-term incentive (LTI) payments closely, particularly where cash or equity awards are paid out despite weak overall shareholder returns. Where incentives reflect strong performance in one division or against a single key performance indicator (KPI) while other parts of the business or the share price have underperformed, proxy advisers and institutional investors frequently recommend a vote against.

Inadequate disclosure of targets and outcomes

Even where incentive structures are well designed, insufficient disclosure of what the performance targets are, how they relate to shareholder value creation and why an award was or was not paid can lead to an against-vote. Shareholders and proxy advisers expect remuneration reports to explain decisions, not just report outcomes.

Base pay quantum and increases

Fixed remuneration that appears out of step with peers, market practice or general award and salary increases across the workforce can attract negative votes, particularly where the company has underperformed.

Governance concerns

A range of governance factors can contribute to a strike, including:

• Lack of board diversity
• Director overboarding (holding too many concurrent board positions)
• An executive chair arrangement, which blurs the separation between board and management
• Key Management Personnel (KMP) holding little or no equity in the company (often described as a lack of ‘skin in the game’)
• Director tenure extending significantly beyond nine years
• A specific transaction, or the absence of one, that shareholders regard as poor value

Preparing for the AGM monitoring and engagement

The period before the AGM is the most effective window for understanding shareholder sentiment and, where appropriate, addressing concerns before they translate into against-votes.

Where the company is covered by proxy advisers, it is worth understanding their voting guidelines and engaging early to learn their proposed voting recommendations. Proxy adviser coverage in Australia includes the Australian Council of Superannuation Investors (ACSI), Australian Shareholders Association (ASA), CGI Glass Lewis, Institutional Shareholder Services (ISS) and Ownership Matters, each of which publish guidelines on remuneration report expectations. Monitoring proxy voting as it comes in before the meeting can help the board gauge the direction of the vote and, where possible, engage directly with key shareholders.

Questions and feedback submitted ahead of the AGM can also signal where shareholders see gaps in disclosure or where remuneration decisions require more explanation. Tracking this feedback carefully, and being prepared to address it at the meeting, reflects well on board responsiveness.

Reporting the result of the AGM

A first strike must be disclosed as part of the AGM results announcement. Beyond meeting this disclosure obligation, the board may choose to acknowledge shareholder concerns at the time of the results or shortly afterwards, and to signal how it intends to respond. Where there is genuine intent to address the issues raised, stating that clearly and specifically, rather than in general terms, is more likely to be received well by shareholders and analysts.

Post‑AGM shareholder engagement and review

The post-AGM period is when the substantive work of understanding and responding to a strike or protest vote takes place. The first step is to distinguish a protest vote from a strike: any against-vote above 10%, even if it falls below the 25% threshold, generally indicates meaningful dissatisfaction and warrants engagement. Treating a near-miss as business as usual increases the likelihood of a strike the following year.

The person responsible for investor relations (IR), whether that is a dedicated IR professional, a director, a senior executive or the company secretary, should engage directly with larger shareholders who voted against the resolution. The initial goal is straightforward: to understand why they voted against a solution. The reasons are often varied across different shareholders, and mapping them is useful for prioritising what to address in the next remuneration report.

Preparing the next remuneration report

After a first strike, the Corporations Act requires the next remuneration report to include an explanation of the board’s proposed action in response, or the board’s reasons for taking no action. This is a mandatory disclosure obligation, not optional.

In practice, this means the board needs to decide, on the basis of its shareholder engagement, what it will change and what it will not. Common responses include:

• Enhanced STI and LTI disclosure, including clearer explanation of what the targets are, how they link to shareholder value, how performance is measured and why an incentive was or was not paid
• A review of the company’s peer group used to benchmark remuneration, taking into account which companies shareholders and proxy advisers consider comparable, not just those nominated by the board
• Adjustments to ensure that incentive outcomes are consistent with whole-of-company performance as experienced by shareholders, rather than reflecting performance in selected areas only
• Addressing governance concerns identified during shareholder engagement, such as director equity ownership levels, tenure or overboarding

Where a proxy adviser’s guidelines were a significant factor in the against-vote, aligning disclosure practices with those guidelines, where reasonable and in shareholders’ interests, is worth considering. This does not mean simply complying with every proxy adviser preference, but it does mean understanding what they look for and being able to explain, in the remuneration report, where the board has taken a different approach and why.

Conclusion

A remuneration report strike is a signal worth taking seriously, even where the immediate governance consequences may seem limited. The two-strikes mechanism creates a structured path from dissatisfaction to board accountability, and the companies that manage it well tend to be those that engage shareholders directly, understand what drove the against-vote and respond specifically rather than generically.

In practice, that means using the post-AGM period for meaningful shareholder dialogue, reviewing remuneration structures and disclosure quality against shareholder and proxy adviser expectations, and ensuring the next remuneration report addresses the concerns raised. Where the board decides not to make changes, a clear, reasoned explanation in the report is preferable to silence.

How Acclime can help with corporate governance and compliance

Acclime supports ASX-listed companies and their boards with corporate governance, company secretarial services and compliance obligations. From remuneration report preparation and AGM coordination to ongoing regulatory filings and shareholder communication support, our team works with directors and company secretaries to keep governance obligations on track and reduce the risk of compliance gaps.

By working with Acclime, boards and governance teams can approach AGM season with clearer processes, better documentation and more confidence in their compliance position. Contact us to discuss your governance needs and how we can support your team.