The Senate has passed the executive remuneration reforms, and ready or not public companies are now subject to new rules.

Executive remuneration will be a high-stakes issue that entire company boards must understand and be in a position to discuss. Experts warn that the impact of these changes should not be underestimated.

With practical implementation of the new laws posing challenges, the underlying principles of the legislation bring a new dimension to directors' responsibilities.

Breaches of the new law will be subject to criminal penalties, and by failing to gain the support of shareholders when it comes to remuneration matters, the end result may be an overhaul of the board.

Consultancy firm Mercer has identified the main ways that the new legislation will impact boards and remuneration practices. Five practical things boards must do to comply with the new rules are:

  1. Ensure the Board and Remuneration Committee has the right mix of skills
  2. Ensure the Board and Remuneration Committee have a fully shared understanding of the remuneration strategy and incentive plans - what, why and how
  3. Understand link between pay and performance and the behaviours that the remuneration programs are designed to foster
  4. Involve Risk, Finance and HR departments in reviewing current plans or designing new plans, so that the implications of the programs are understood and aligned with business strategy
  5. Develop a Remuneration Committee calendar to ensure that necessary activities are addressed at appropriate times in the financial year, including - annual salary review, annual performance review, review of performance against annual bonus plan, review of performance against long-term incentive plan and succession planning.