These three recommendations, in unison, provide non-associated shareholders with a powerful tool.

IT appears the Productivity Commission has a fight on its hands over recommendations to ward off unfettered executive pocket-stuffing.

There are three recommendations made by the Productivity Commission that are designed to maximise the visibility of the message from shareholders to company directors on pay.

The first recommendation is to remove from the count any votes made by directors or their associates. A company's directors already know how they feel about the remuneration practices of the company -- they created them. The non-binding vote is designed to provide feedback to directors on how non-associated shareholders feel, so limiting the vote will be more indicative of shareholder attitudes.

The second is to ignore the chairman's undirected proxies -- those votes that give the chairman of the meeting the ability to vote how she sees fit. Shareholders have to option to hand over to the chairman the final decision on how to vote, and usually do so when they trust what the board is doing.

However, these votes can also be an unwanted by-product of laziness within fund management firms. Surely, if a fund manager trusts the company, having their vote on the remuneration report count will be as simple as ticking an extra box on the proxy form. Those who can't be bothered ticking the box "For" or "Against" will see their donkey votes excluded. The effect -- directors will have less noise camouflaging shareholder attitudes towards remuneration.

The third recommendation is to require an above-average level of support for remuneration in order to declare it "passed". Being a non-binding vote, the result of a resolution that fails to win support would be little more than embarrassing. Therefore, the Productivity Commission is recommending that a minimum of 75 per cent of shares must vote in favour in order to pass the resolution. These three recommendations, in unison, provide non-associated shareholders with a powerful tool. Had they all been in place for this year's annual general meetings, the egg-on-your-face factor would have been extremely high amongst directors, as would be the pressure to better engage with owners. If adopted, these recommendations would place Australia at the forefront of best-practice governance and shareholder rights, and light years ahead of regions that are home to the worst examples of executive largesse.

This year the highest protest vote over pay was at Novogen, where 81 per cent of votes were cast against the remuneration report. This includes votes cast by the board and its associates and the donkey votes cast by the chairman.

There are two interesting aspects of this situation. The first is that the board obviously has no idea why it has received such a strong rebuke. Chairman Phillip Johnston summed up the view of the board in his address to the annual general meeting; "there is a very significant proxy vote against the Remuneration Report which we take broadly as a vote about the reduced share price".

The second point of interest is the overwhelming support for the re-election of directors immediately following the vote on remuneration. Johnston himself was supported with 94 per cent of the vote, despite his role as chairman of the remuneration committee. To suggest that shareholders will use a board spill to turf out every director because of remuneration is baloney.

This article by Stuart Wilson, Chief Executive Officer of the Australian Shareholders' Association featured in his weekly Shareholder Opinion column in The Australian on Thursday, 12 November 2009.