Federal Government Aims to Curtail Executive Payouts

Senior executive pay has come under the gun with the release today of the Rudd government’s Termination Benefits Reform Bill.

The Corporations Amendment (Improving Accountability on Termination Payments) Bill 2009, is the government’s response to address what it says are community concerns over executive “golden handshakes”.

The bill seeks to significantly lower the threshold at which shareholder approval is required for a termination payment from seven times an annual remuneration package to one times average annual base pay.

It also expands the number of company officers for which remuneration approval is required, and broadens the definition of what constitutes a benefit to close any loopholes in current legislation.

Shareholders will also be able to assess golden handshakes in the context of the recipient’s actual performance by requiring shareholder votes on termination benefits to take place at a future annual general meeting following an executive’s departure.

There will also be a ban on the calling of extraordinary general meetings that are only to undertake such an approval vote, the government said.

Additionally, penalties for non compliance have been ramped up with fines for individuals being set at $19,800, up from $2,750, and for corporations set at $99,000, up from $16,500.

Explaining the amendments, Nick Sherry, minister for superannuation and corporate law, said the amendments sought to address disquiet within the Australian community over executive remuneration.

“There is significant and ongoing community concerns about excessive pay, especially “golden handshakes” and particularly at a time when many Australian families are being hit by the global recession,” he said in a statement on the bill’s release.

Peter Acheson COO at IT executive recruiter Peoplebank, said the new legislation would see organisations likely to begin changing the way employment contracts were drafted.

“We can reasonably expect that some firms will look at employment agreements and change their terms to get around having to get shareholder approval for more than one year’s base salary payouts,” he said.

“With respect to termination payments, this is one area that corporate Australia has already identified as being out of whack, and we are seeing a correction anyway in the market with regard to pay.”

Acheson said CIOs, as well as CEOs, would needed to look at their pay and contract conditions.

“Any member of a senior management team of a large public company is the sort of person this will impact – it won’t just be the CEO,” he said. “Other senior execs are on multi-million dollar packages, too.”

Acheson advised that given the changes, and the grey areas around compliance obligations, CIOs should look to employment lawyers and other specialists in order to best manage the coming changes.

“Any one in a senior executive role should always get advice on negotiating their contract,” he said. “Eighty percent of senior execs would already do that and this will force the other 20 percent to do it as well.”

The government is also seeking written submissions on the exposure draft legislation. Those wishing to comment have until Tuesday 2 June 2009.

The draft bill can be viewed here. Public submissions on the bill can also be made at the same site.