Graham Perrett (Moreton, Australian Labor Party) Share this | Hansard source

I am pleased to speak in support of the Corporations Amendment (Improving Accountability on Termination Payments) Bill 2009. Most ordinary Australians are fed up with the largesse of executive salaries, and particularly the inequality of excessive termination payouts. Over the last few years we have heard of too many examples of executives and company directors walking out the door with obscene amounts of moolah. If you flick back through the business pages of any newspaper over the last few years, you will see some examples of this. For example, Transurban CEO Kim Edwards walked away with $13.3 million. Santos gave John Ellice-Flint a parting gift of $16.8 million. Sol Trujillo received a $3 million termination package after he earned more than $30 million in the job as Telstra CEO. If I can judge his performance on the comments made to me by my constituents, the mum and dad investors, they were not happy with that arrangement at all, especially when you look at the way Telstra shares have performed over that time.

Oxiana paid out $10.7 million to Owen Hegarty despite shareholders voting against the move. Great Southern paid $2 million to former chief executive John Young when he retired in February 2008, and of course after that investors lost some $1.8 billion in this failed company. There were obviously some flawed arrangements in that company. Great Southern made up nearly 50 per cent of the MIS sector, so many mum and dad investors lost out and many rural communities were destroyed when Great Southern went down the gurgler, yet $2 million was paid to the former chief executive, John Young, not too much earlier.

Such payments illustrate that this sector is out of control. They represent irresponsible corporate behaviour of the worst kind. What is particularly offensive to most ordinary Australians is that many of these payments have been made in the face of dwindling share prices and falling company profits—or, in the case of Great Southern, to the executive of an entity that was about to go kaput. In the midst of the global financial crisis, it is just not fair for retirees and mum and dad investors to watch their investments plummet while the failed CEOs and executives can leave with the so-called golden handshakes, when in reality few of them would actually deserve even a fake gold watch. President Obama recently put it this way:

… what gets people upset—and rightfully so—are executives being rewarded for failure.

I could not agree more.

It would have been easy to leave this issue in the too-hard basket, as the Howard-Costello government had done. However, the Rudd government is determined to do something about it. So the bill before the House amends the Corporations Act 2001 to beef up the regulations that govern termination benefits paid to company directors and executives. In doing so, the bill empowers shareholders to reject massive termination payouts that are not in the interests of the company. Under the Howard government system, an executive could receive up to seven times their annual salary before there was any shareholder approval required, and it is easy to see how quickly payouts can blow out when a director can receive seven times his package without any appropriate shareholder approval. This bill drastically reduces this threshold from seven times an annual remuneration package to one times the average annual base salary—surely a much more sensible, common-sense approach. This measure alone will go a long way to rein in excessive payouts.

When we look back historically at the way CEOs and executives have been paid, it is a horrifying arithmetical progression. I will not go back to the 1950s, when the situation was much better than it is today, but let’s look back to 1990, which is not that long ago. For Queenslanders, the Broncos had only been around for two years, to put it in context. Between 1990 and 2005 the average cash remuneration of a CEO in one of the top 50 listed Australian companies rose by 564 per cent to $3.4 million, which is 13.5 per cent per annum adjusted by inflation. But, if you look at average full-time earnings, they only rose by 4.2 per cent per annum. Here we are comparing apples with apples. If you look from 1990 to 2009, the top CEO pay ballooned from 18 times average full-time earnings, as they were in 1990, to—what do you think would be appropriate in 2009?—74 times. Obviously things are a little bit out of control.

But let’s not stop there. Let’s also have a look at the actual results of these companies. If they were performing at rates commensurate with those increases perhaps you could quieten down shareholders, but that is not the case. In fact, if you analyse the performance of companies against three criteria—return on equity, share price change and change in earnings per share, which anyone would agree are real measures of how a company is performing—researchers found that high and excessive pay levels actually coincide with a lower bottom line. It is counterintuitive, almost. This is from research by Dr John Shields from University of Sydney’s school of business. He said:

If you look at the numbers, it is accurate to say the more you pay a CEO the worse the company performs and the less you pay the better it performs.

It is obviously the principle they work on when paying politicians!

The bill will also increase the number of company officers for which shareholder approval of payments is required, to include key management positions as well as directors and senior executives. This is a good safeguard. It provides for additional accountability and, most importantly when it comes to corporate affairs, transparency. The bill also attempts to block any loopholes emerging by clarifying and expanding the definition of a termination benefit. It requires a broad interpretation of ‘benefit’. The bill also includes a regulation-making power to clarify, whenever there is doubt, whether payments are termination benefits or not.

Any termination payment made without shareholder approval will be required to be paid back immediately. Wouldn’t you love to see that—someone sitting down to write a cheque to give back to the corporation, to give back to the shareholders? I would like to see that. Obviously, it is not enough to have the carrot; we also need the stick. The arrangements are backed up by tough penalties for unauthorised payments, including $19,800 for individuals and $99,000 for corporations. These new arrangements will apply to all new contracts entered into, extended or substantially varied after this bill comes into law.

It takes courage for a government to introduce legislation like this. Ridiculous executive pay packets and golden handshakes have unfortunately become the norm in a culture of entitlement and greed in some sectors of corporate Australia, but that does not mean that we cannot turn this culture and that atmosphere around. We can drive a stake into the heart of these corporate vampires. Gordon Gekko must die! This bill is a response to an overwhelming feeling in our communities that these inequalities are just not right. It also sends a strong signal to corporate Australia: we and the Australian community are watching what you do. We expect you to be responsible and we expect you to treat your workers and your investors in the same spirit that you treat your CEOs. Ordinary Australians demand nothing less from the Rudd government, so I commend the bill, proudly, to the House.

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