Mike Symon (Deakin, Australian Labor Party) Share this | Hansard source

I rise to speak in support of the Corporations Amendment (Improving Accountability on Termination Payments) Bill 2009 as moved originally by the minister back on 24 June and now before the House today. This bill aims primarily to strengthen the voice of shareholders. After all, they are the owners of the companies. When it comes to the provision of termination payments and golden handshakes for outgoing directors and executives, they should certainly have a say. I think this is especially pertinent to my electorate, where many of my constituents are what the media has quaintly termed ‘mum and dad investors’. But it is also pertinent to the many retirees and superannuation account holders whose savings are invested in publicly listed companies. I very frequently receive correspondence on issues relating to shares and the stock market, and the topic of excessive executive payouts and salaries is raised often. I think shareholders should not be denied a say in how much an executive or director of a company is paid upon termination. Their voice should be their vote.

Earlier on, I was listening to the member for Blair’s contribution and just now I was listening to the member for Brisbane’s contribution to this debate, and I agree that there is enormous community outrage and resentment towards these massive payouts. There are at the moment no defined limits to these payouts, unlike termination benefits that apply to ordinary working people whose termination payments are governed by awards, agreements and legislative instruments. You certainly will not find seven years of salary or wages paid to a worker at the time of termination—not once, not ever. Even when you look at some of the most progressive workplace agreements that actually deal with redundancies you will see they only allow up to four weeks pay per year of service—and many awards and agreements offer much lower levels. If you have a think about it, at an accrual rate of four weeks per year, an employee would have to work for 91 years to achieve a payout of seven years worth of remuneration.

This bill reflects action on the part of the government in the face of long-held community concern regarding exorbitant executive payouts, especially to the executives of underperforming companies. This bill has been put together in consultation with the industry and shareholder groups with the aim of strengthening the existing corporations legislation. Provisions are made in this bill for the protection of genuine leave entitlements, such as annual leave and long service leave, that would always be paid on resignation, as well as super entitlements up to the statutory percentage.

This bill also broadens the concept of who is considered to be key management personnel to a base wider than just directors to now include the five most highly remunerated officers of a disclosing entity. So people such as chief executives fall under the provisions. Importantly, this bill will ensure the shareholder vote cannot be affected by a retiree or an associate of a retiree by restricting them from voting for their own golden handshake. That happens far too often at the moment.

This bill also introduces company and personal fines for organisations that are found to have breached these new provisions. The fines of $19,000 for individuals and $99,000 for companies are a strong reminder of the government’s commitment to the enforcement of this regulatory regime. This bill will only affect new contracts and renewed or extended contracts. There is no provision in this bill for backdating to affect any existing, unaltered contracts.

The Rudd government, importantly, respects reward for effort—of that there is no question. There is no move by the government to cap payouts. Companies will not be compelled to reduce any payment or salary to anyone covered by the provisions of this bill. However, they will need to have any golden handshakes greater than one year’s base salary approved by shareholders—that is, the owners of the company. It is the shareholders after all that have to foot the bill in the reduction in the value of their shares after a large termination payment to a person who no longer works for their company and is of no current or future value to the company. This is an important point, as golden handshakes, as they are euphemistically called—although I like to call them ‘termination payments’—are a payment made to an executive or director after they have left the employ of a company, which can hardly be categorised as the most efficient use of company funds.

The government is installing a greater measure of democracy and transparency in the sector and allowing all shareholders a greater say on the actions of their boards, the performance of their executives and the performance of their company. The provision for this sort of decision for shareholders already exists; however, at the current threshold, it is a ridiculous seven years of total director or executive annual remuneration. This bill brings the threshold into a position which is more in line with community expectations and which will allow shareholders more say. This can hardly be considered a bad thing in this day and age, with the global financial crisis affecting economies across the world at a time when we have just witnessed the very worst of what a lax attitude to corporate governance can allow to occur. Good executives, performing well, will have no impediment to ample reward for their performance. But it seems incongruous to me that executives should be outlandishly rewarded for poor performance, without the opportunity given to the owners of the company—the shareholders—to vote on such a payout.

Recently, my staff and I assisted a number of constituents in my electorate who lost their jobs when Pacific Brands decided to sack 1,850 employees and shift its operations offshore. The Holeproof factory in Nunawading, in my electorate of Deakin, was one of the plants closed by the company. When those employees who are now redundant talk to me about the challenges now facing them, I have trouble measuring that up against the $3.5 million payment that the former Pacific Brands CEO Paul Moore received when he stood down from the company in December 2007. After all, it was under Mr Moore’s direction that Pacific Brands bulked up on acquisitions, leading to an $800 million debt that in part triggered this year’s abandonment of local production and the consequent mass lay-offs. Under the existing act there is no accountability to the shareholders of Pacific Brands—or its employees, for that matter—for Mr Moore’s actions, and he has already walked away with $3.5 million.

The idea that shareholders should have a say is not new either. As we saw in 2008, shareholders of Oxiana, now OZ Minerals, rejected a $10.7 million payout for chief executive Owen Hegarty. When this payout was announced in June 2008, it was assumed that it was a fait accompli and that it would be approved at the AGM the following month. But, in July 2008, the shareholders rebelled and that payment did not happen at that time.

To touch base with the reality of daily life for a while, a worker on an average salary of $55,000 per annum would have to remain at work for 194½ years, if you ignore inflation, to accumulate a sum of $10.7 million. That is mind-boggling when you think about it—in fact it is better than winning Tattslotto and not having to share the first prize. Yet this amount was put forward as being reasonable for a payment to a CEO who was no longer working in that role for the company. No-one could deny that Mr Hegarty had worked at Oxiana over a period of time, and had, I am sure, built value in the company, but the proposed payout was simply more than what the shareholders were prepared to put up with. This rejection of Mr Hegarty’s golden handshake was heralded by stock market commentator Stephen Mayne as a ‘red letter day for shareholders’. But, of course, there is more to that story—and, as the member for Brisbane said earlier, Mr Hegarty later collected $8.3 million for leaving. That is still an enormous sum of money in anyone’s eyes.

In the past week we have heard the news that the outgoing chief executive of Fairfax had his $762,000 base payment for five months work topped up with a $4.1 million golden handshake. This, of course, is in the same year that Fairfax reported a loss of $380 million. This payout to Mr Kirk came after remuneration details in last year’s Fairfax annual report indicated that Mr Kirk was entitled to a $2 million termination payout. Was there any explanation for this given to shareholders? No, there has been none forthcoming--not until the annual general meeting in November, according to Fairfax chairman and prominent Victorian Liberal identity Ron Walker. By that time the former chief executive, Mr Kirk, and the $4.1 million will be long gone. Under this bill, Mr Kirk’s payout would have been capped at a far lesser amount before a shareholder vote was required. Obviously, that opportunity to be heard would be far more palatable to shareholders than the unexplained $4.1 million payout that Fairfax sent Mr Kirk away with.

These are all examples of high executive payouts for poorly-performing companies. But there are also examples of large payouts in other companies, and I suppose I cannot speak on a bill such as this without talking about the former CEO of Telstra Sol Trujillo. He walked away with a payout of $3.76 million. I will go into this a bit more later on, but Telstra is a company that has performed a little better than some of those others I recently mentioned. But I never hear from my constituents about how well Telstra are doing or the outstanding service they give. In fact I hear the opposite. The feedback I get from constituents is about their burning anger that they are being slugged $2.20 to pay their telephone bills at a Telstra shop or a post office.

Let’s think it through. There are no surprises here—the money for these executive payouts has to come from somewhere. As the member for Brisbane said before, at the end of it all it is going to come from a customer—it is going to come from an ordinary person who has to stump up more money so that some fat cat at the top of the tree can walk out the door with more money. Interestingly, in the case of Telstra’s payment to Sol Trujillo, despite the size of the payment it would actually be below the thresholds proposed by this bill. Why is that? Well, that is due entirely to the size of Mr Trujillo’s base salary of more than $13 million. It certainly raises the related issue of executive remuneration, which I shall leave for another time. That is certainly something worth talking more about.

Recent research compiled by the RiskMetrics Group indicates that amongst the top 100 companies payouts of golden handshakes under the new regime proposed by this bill could have reduced by as much as $47 million for last year alone, if you take out statutory entitlements. Of the 13 top 100 companies that had a CEO depart during the 2008 financial year, all received payments of some sort, but, importantly, five of those 13 did not involve payments that would have triggered the need for a shareholder vote because the executive termination payouts did not exceed one year’s salary. So there is in my mind some sort of standard that already operates there at the moment. I suppose there is some defence of that standard by those companies. These five companies—Aristocrat Leisure, BHP Billiton, Bluescope Steel, Downer EDI and Westpac—show that what is proposed in this bill is not that far removed from current good business practice.

The RiskMetrics report found that three out of the 13 Top 100 companies had estimated potential savings in excess of $10 million should the shareholders have had the right to vote on these golden handshakes. It is not right that those very few people at the top of the tree dictate their own terms and conditions, not only when they are there but also when they are leaving, without reference to shareholders. I welcome this long-overdue reform to excessive executive and director termination payments and I commend the bill to the House.

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