Following the announcement on 18 March 2009 proposing reforms to the Corporations Act 2001 (Cth) in respect of termination payments to certain executives, on 5 May 2009 the Federal Government released an Exposure Draft of the Corporations Amendment (Improving Accountability on Termination Payments) Bill 2009 (Bill). The Bill is in response to ‘community concern’ about the level of executive ‘golden handshakes’ in the context of the Global Financial Crisis (GFC).1
The Bill caps termination benefits for certain senior executives at one year’s average base pay unless shareholder approval is obtained.
The spotlight is squarely on what top executives get paid and how this is regulated. ‘This scrutiny has increased due to the GFC and the new regulation in this area overseas, especially in the United States and the United Kingdom where government bail outs have been conditional on limits on executive remuneration,’ said Justine Turnbull, Partner, Employee Relations and member of the Board & Executive Solutions team.
‘The legislation released last Tuesday is an ill-considered, populist knee-jerk reaction,’ continued Ms Turnbull. ‘In Australia we have not seen the level of executive remuneration seen in other jurisdictions and the Federal Government has not had to rescue big business in the same way that the United States and United Kingdom governments have had to rescue many players in the financial services sector. The Federal Government has stated that it is imposing further restrictions on termination payments to executives because of concerns in the “community” but the community is irrelevant unless they are shareholders. Decisions around executive remuneration are properly undertaken by a company’s board of directors, if shareholders don’t like the decisions made then they can deal with them at the company’s AGM by voting directors off the board or voting in respect of the remuneration report.’
The Federal Government has also asked the Productivity Commission to hold an inquiry into executive remuneration. Submissions to this review are due on 29 May 2009. ‘The Productivity Commission’s examination will be wide ranging and it is a good idea,’ said Ms Turnbull. ‘It won’t be a knee jerk reaction like the government’s Bill and it will cover more than termination payments including the tax treatment of certain commonly used executive incentives.’
Public scrutiny will continue after the Productivity Commission’s inquiry is over, so it is important for Boards to monitor the changes to regulation in the area. ‘Boards and management must consider contractual, regulatory and governance issues associated with executive employment and remuneration arrangements to align business drivers with recognition and reward,’ concluded Ms Turnbull.
Endnotes
1.
Media Release, ‘Government Releases Termination Benefits Reform Bill’
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