The Rudd government will introduce new laws to curb excessive termination payments for executives, amid community concern about high "golden handshakes" given to departing company heads.
The Rudd government will introduce new laws to curb excessive termination payments for executives, amid community concern about high "golden handshakes" given to departing company heads.
Treasurer Wayne Swan said under the changes, shareholder approval will be required for payouts of more than one years' base pay.
"It is very important that we ensure executive pay is in step with good governance ... and meets decent community standards," he told reporters.
Mr Swan said there were some instances where the size of so-called "golden handshakes" had been "obscene".
"The government will curb golden handshakes in the form of excessive termination payments," he said.
Mr Swan said under the former Howard coalition government termination payments were up to seven times a director's annual pay before there was any shareholder approval.
"Shareholder approval will now be required for a termination payment exceeding one year's base pay," he said.
"I say this to executives that are listening to or watching this announcement - the government does except you to do the right thing by the community and the country, and particularly given our circumstances at the moment."
The government has also referred the broader issue of executive remuneration to the Productivity Commission, which will provide a final report within nine months.
Mr Swan said the Productivity Commission inquiry will be headed by former Australian Competition and Consumer Commission (ACCC) chief Professor Allan Fels.
Mr Swan said the government wanted to introduce provisions that would result in greater trust between executives and the rest of the community.
Corporate Law Minister Nick Sherry cited some examples of payouts to departing executives.
Last year, OZ Minerals director Owen Hegarty received a bonus of $8.35 million, which amounted to 642 per cent of his base salary.
"I would argue very strongly that if these new laws were in place he would have found it very, very difficult to have received that particular payment," Senator said.
Former Publishing and Broadcasting (PBL) boss John Alexander was last year given a $15 million termination payment, 468 per cent of his salary, after PBL was split into Consolidated Media Holdings (CMH) and gaming company Crown.
"Again I would contend that with these provisions in place, he would have found it very difficult to have received this sort of payment," Senator Sherry said of Mr Alexander, now executive chaiman with CMH.
"We believe that the significant reforms we have announced on so-called golden handshakes will be effective."
Mr Swan said Prof Fels' investigation of golden handshakes and sizeable bonuses would be a "professional, dispassionate" examination of the issue.
"The incentives that are provided to corporate Australia go to the very core of whether we are successful in the long term," he said.
The Group of 20 (G20) developing nations are examining excessive pay packets as part of work on dealing with the fallout from the global financial crisis.
"What we've seen in the banking system is incentives which have encouraged excessive risk and we are all now living with the outcome of that," Mr Swan said.
Prof Fels said the inquiry would canvas issues such as the link between pay and performance, forms of executive remuneration and the processes by which executive pay was set.
It would also look at what action should be taken by stakeholders such as government, shareholders and regulatory institutions.
"There is very strong community feeling about this matter," Prof Fels said.
"In particular, when failure is rewarded, when people lose jobs, when companies do badly and yet big bonuses are paid."
The Australian Institute of Company Directors (AICD) believes the new legislation could be counter-productive and that education is a better approach.
"With the benefit of hindsight, it would seem there have been mistakes made in termination payments awarded in some companies," AICD chief executive John Colvin said.
"However, we believe that education is better that legislation in addressing this issue.
"AICD recently released Executive Remuneration Guidelines for listed company boards, including a section on what boards should consider when drafting termination provisions into executive contracts as well as other aspects of executive pay.
"We believe an educative approach is a better solution. We are working with boards to address all areas where the community is concerned about executive remuneration."
