James Bidgood (Dawson, Australian Labor Party) Share this | Hansard source

The Corporations Amendment (Improving Accountability on Termination Payments) Bill 2009 will amend the Corporations Act 2001 to strengthen the regulatory framework relating to the payment of termination benefits to company directors and executives. These amendments will empower shareholders to reject or veto excessive termination benefits that are not in the interest of the company.

Under the bill, the amount that can be received before shareholder approval is required is reduced to one year’s base salary as opposed to total remuneration. The bill will strengthen the regulatory framework by significantly lowering the threshold at which termination payments must be approved by shareholders. Currently a termination benefit can reach up to seven times a director’s total annual remuneration package before shareholder approval is required. Under the new arrangements, termination benefits for company directors and executives exceeding one year’s average base salary are subject to shareholder approval. It is important to note that boards can still pay departing executives as much as they like as long as it is with shareholder approval. It is the shareholders who own a company, after all.

Most Australians would agree that huge, exuberant golden handshakes, particularly where a company has not performed or where workers have been retrenched, are simply a means of rewarding failure and are absolutely unacceptable—and who can blame them? Indeed, there are media reports stating that shareholders in some of Australia’s biggest companies would have saved up to $62 million last year if proposed new laws that aim to put an end to excessive golden handshakes had been in place

The community expects the government to act and to act decisively, and this government is doing so. We have seen example after example of corporate executives doing little more than raiding the kitty and bailing out when times got tough for their companies. These men and women with positions of responsibility in a company are being rewarded with sometimes millions of dollars without the approval of shareholders, the owners. This is just simply not good enough and definitely not fair, and we as a government will act decisively to make such actions by executives once and for all illegal if shareholders do not agree to it.

In the media there has been some argument that this long overdue move will limit the ability for companies to attract overseas talent. Studies have shown that the vast majority of executives are promoted from within a company, with only 18 per cent of CEO appointments from overseas. The government’s decision to act on improving the accountability on termination benefits follows increasing community concern about the excessive pay practices, particularly at a time when many Australian families are being hit by the global recession. The government is determined to ensure regulation of executive pay keeps pace with community expectations. In addition to lowering the threshold the bill addresses these concerns by expanding the number of company officers for which approval is required. This is good for accountability.

The bill also clarifies and expands the definition of what constitutes a termination benefit by requiring that a broad interpretation of the term ‘benefit’ is given and providing that the substance of the payment should prevail over its legal form. The bill provides businesses with certainty and guidance by including a regulation-making power to specify for the avoidance of doubt whether certain types of payments are or are not a termination benefit.

The bill also introduces an express obligation on the recipient to immediately repay a termination benefit that was given in contravention of the requirement to seek shareholder approval. Furthermore, it introduces significantly higher penalties for unauthorised payments of termination benefits, with potential fines now set at $19,800 for individuals and $99,000 for corporations. This is aimed at holding companies accountable in promoting responsible remuneration packages.

The new arrangements will not apply retrospectively to existing contracts and will apply to all new contracts which are entered into, extended or substantially varied after the commencement date. The key measures of the bill include: one, significantly lowering the threshold at which termination payments must be approved by the shareholders; two, expanding the scope of the provisions to include key management personnel for companies that are a disclosing entity; three, clarifying and expanding the definition of what constitutes a termination benefit; four, prohibiting directors and executives who hold shares in the company from participating in the shareholder vote to approve their own termination benefit; five, introducing an express obligation on the recipient to immediately repay unauthorised termination payments; and, six, introducing significantly higher penalties associated with unauthorised payments of termination benefits.

The amendments are urgent as there is significant community concern about excessive pay practices, particularly at a time when so many Australian families are doing it tough in the global recession. This bill effects changes in the regulatory framework in relation to better empowering shareholders, improving the accountability of company management and in setting remuneration and promoting responsible remuneration practices. The new arrangements will not apply retrospectively to existing contracts before the bill becomes law and will apply only to all new contracts which are entered into, extended or substantially varied after the commencement of the provisions. This framework aims to curb excessive termination benefits paid to company executives and directors and is a win for fairness. I commend this bill to the House.

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