Tony Zappia (Makin, Australian Labor Party) Share this | Hansard source

I welcome the opportunity to speak in support of the Corporations Amendment (Improving Accountability on Termination Payments) Bill 2009. This bill will amend the Corporations Act 2001 to strengthen the regulatory framework relating to the payment of termination benefits to company directors and executives. The key measures of this bill include significantly lowering the threshold at which termination payments must be approved by shareholders; expanding the scope of the provisions to include key management personnel for companies that are not disclosing entities—this means it is not just CEOs that are covered by these provisions but also other senior executives who are on similar types of contracts; clarifying and expanding the definition of what constitutes a termination benefit; prohibiting directors and executives who hold shares in the company from participating in the shareholder vote to approve their own termination benefits; introducing an express obligation on the recipient to immediately repay unauthorised termination benefits; and, finally, introducing significantly higher penalties associated with unauthorised payments of termination benefits. These measures go to the heart of many of the causes of the global recession and the elitist corporate culture that has evolved in recent decades and which appears to be right in the corporate sector—a corporate culture that is driven by greed and self-indulgence and that has contributed substantially to inequality, price abuse and worker exploitation. I will speak to each of these matters in the time that I have.

Gone are the days when a CEO was usually someone who had worked their way up through the company, dedicated their working life to it and had the long-term interests of the company at heart. Today senior executives move frequently from one organisation to another and are generally on performance based contracts, taking with them huge payouts every time they move on. There is now very much a focus on the short-term result, which can end up in, amongst other things, the reckless behaviour that led to the current global economic crisis, or organisations whose long-term prospects are worse than when the executive started. At the same time the performance driven culture has created out of control and unjustified income disparity between executives and workers with respect to both salaries and termination payments. To highlight this point, I want to quote some statistics from the USA. Whilst these might be US statistics, I would expect that similar trends have occurred in Australia. Regrettably I do not have the Australian statistics, because I am not sure that a similar survey has been carried out. Data from the United States shows that in 1965 the average wage of a CEO was 51 times the minimum wage. By 2005 this ratio had grown to 821 times the minimum wage—that is, from 51 times to 821 times. That is the kind of change we have seen.

At a time when Australia has seen massive improvements in our health, education and economic position, the inequality between CEO and worker salaries is greater than ever. A key measure of this bill prohibits directors and executives who hold shares in the company from participating in the shareholder vote to approve their own termination benefit. An independent board of directors is expected to be part of the checks and balances within a company structure, yet we have seen several examples in recent corporate history in Australia of company directors acting to protect their own financial situation rather than that of the company and its shareholders. Directors of HIH Insurance served time in jail because they were providing misleading information to shareholders. This was the largest corporate collapse in Australian history, and the directors were providing misleading information on the company’s true financial position. They compromised their judgment by trying to protect the value of their own shareholding in the company. Directors of both ABC Learning and Babcock and Brown had significant shareholdings in their companies that had been purchased using margin loans. How can a director act independently when they are concerned that the loan they used to purchase shares may be cancelled by the bank if the share price drops below a certain level? These practices are dishonest, they are fraudulent and they must cease.

We have also seen several instances of this in the past 12 months in the United States, where CEOs and executives of firms have been given massive payouts while their company required a bailout from taxpayer money. Many of these so-called golden parachutes were paid from taxpayer dollars. The CEOs of Merrill Lynch, Lehman Brothers, Citigroup, Fannie Mae, Freddie Mac and AIG all received massive payments either as termination payments or, incredibly, as bonuses as government bailouts were being provided while the firms were being wound up.

This bill increases transparency and empowers shareholders to reject excessive termination payments. In Australia there are similar examples of excessive CEO golden handshakes and remuneration packages. According to a story written by Emma Connors in the Australian Financial Review in 2008, in the five years to 2006 the average base pay for a CEO of the top 100 listed companies jumped from $888,407 in 2001 to $1.8 million in 2006. The average annual bonus paid also more than doubled, reaching $1.66 million. Contrast those payments with those of working Australians. In the same period, from 2001 to 2006, the minimum wage increased from $413 per week to $511 per week. So, in a period when the average base pay of a CEO more than doubled, the minimum wage increased by only 24 per cent. Bonus payments also more than doubled for the same period. The departing Oxiana CEO Owen Hegarty was paid $8.3 million. The departing Telstra chief Sol Trujillo was paid $3.7 million in addition to the Telstra shares he was given. I understand that Sol Trujillo’s total salary package for his final 12 months was $9 million. This is despite Telstra’s share price falling around 40 per cent during his time—from above $5 in 2005 to around $3 in 2009. At the same time Telstra laid off around 20 per cent of its workforce under Sol Trujillo’s tenure, leaving some 10,000 Australians out of work.

Paul Moore, former CEO of Pacific Brands, received $3.48 million in termination payments when he resigned in 2008. Sue Morphet, the current CEO of Pacific Brands, received a pay increase from $700,000 to $1.8 million at the same time that 1,800 workers in her company lost their jobs. And there was $12 million paid to departing Qantas CEO Jeff Dixon in 2008. Interestingly, at the 2008 annual general meeting of Qantas 40 per cent of Qantas shareholders voted against the remuneration report that included this $12 million payout. These payments can only be described as greedy.

In today’s edition of the Australian Matthew Denholm has written about Tasmanian company ACL Bearings, which went into receivership last month. Jeremy Partridge, a worker at the company for the past 23 years, talks about the voluntary $100 a week pay cut he and other workers took in an effort to protect the long-term interests of the company. During the time when workers were cutting their pay by 20 per cent and moving to a four-day week, two directors were paid a total of $665,000 in redundancy payments. To add to this insult, the receivers of the company have advised that there is no money left in the company to pay the entitlements the workers are entitled to under their workplace agreement. I will quote Jeremy Partridge here. He said:

We’ve been shafted. They’ve walked away with the money and we got next to nothing.

I certainly understand and empathise with his sentiments. You can understand how workers at ACL Bearings feel betrayed by these two directors of the company putting their own financial interests first. I understand that this company also got some taxpayer assistance to try and keep it afloat.

In September 2008 the US government bailed out AIG using $182 billion of taxpayers’ money. AIG then used this taxpayer money to pay $185 million in bonuses to executives in March 2009. There was nothing legally the US government could do to stop them using taxpayer money in this way. It was only public outcry that forced some executives to forgo these bonuses. I refer to the US cases because we live in a global economy and we know full well that whatever is happening in other parts of the world is clearly going to happen here in Australia as well. We have seen similar situations in Australia with administrators of companies working to recover bonuses from directors of such companies as OneTel and ABC Learning. The measures in this bill mean that if a termination payment is made in contravention of the requirement to seek shareholder approval, the money must be repaid immediately. Failure to do so will result in significantly higher fines of $19,800 for individuals and $99,000 for corporations. These measures shift the balance away from the directors and executives to the taxpayer or the shareholder whose money is being used to pay the bonuses.

Earlier I referred to a corporate culture which underlies price exploitation and working conditions. I also referred to the performance based contracts today’s executives are placed on, performance measures which are inevitably tied to the bottom line of the annual profit and loss statements of firms. The profit focus of company executives inevitably leads to the two consistent strategies that we see from these profit driven executives, squeezing more out of their workforce through measures such as unpaid longer working hours, wage control, reduced staff numbers or contracting out services. Nothing original, no innovation—just ruthless and insensitive cost cutting.

The opposition we frequently see from CEOs to wage increases or better working conditions—or their support of the failed Work Choices laws—is not driven by national productivity improvements but by the personal gain and individual greed of executives whose own incomes rise as company profits rise. Contracting out services or outsourcing achieves a similar objective, except that the contractor, usually a small business operator, is squeezed to the hilt. And if the contracting business goes down the smaller contractors are often sent bankrupt and pushed to the back of the queue of creditors trying to recover money from the failed company. In the long term, the most productive organisations are those that invest in their workforce rather than exploit them. But when all you are interested in is short-term results, there is the behaviour I have just described.

I now turn to the second matter I referred to earlier, and that is the exploitation of consumers. Bottom line profits are also affected by prices charged. That is particularly so when consumers have little or no choice because the business they are dealing with has a monopoly or limited competition for the product or service being provided. There could be no better example of that practice than in the recent decision by Telstra to charge customers $2.20 for paying their accounts with cash. This matter has already been raised in the House by my colleague the member for Braddon. This new fee can only be described as a rip-off. Cash is legal tender, guaranteed by the government, and now Telstra has imposed a charge if customers use it. It has done because it can—not because it is right, not because it needs to, but simply because the new Telstra CEO wants to impose a fee, obviously to increase Telstra’s profits. One can only speculate why, but I will leave that to the imagination of the Australian people.

Constituents in my electorate of Makin who have contacted my office about this matter are outraged at the $2.20 fee, and understandably so. If they pay their accounts through their bank they are likely to be charged a bank fee. If they use a credit card they incur a credit card fee. So, whichever option they choose, it is likely to incur an additional cost. Payment of accounts is part of the administrative costs of every organisation and should be costed into the operational overheads of a business. One wonders what other charges Telstra proposes to add on in the future. And would the company act so inconsiderately if it did not have a monopoly?

The last point I make is how executive payments have contributed to the global financial crisis. It is my view that they have contributed to the global financial crisis because senior executives were hell-bent on short-term profiteering, thereby exposing industries and financial organisations to extreme risks—risks driven by unrealistic expectations and poorly assessed proposals and schemes and risks which would never have been taken if executives assessed the long-term outcomes of their decisions rather than the short-term profits. They do that because they know that they are only there for the short term and they do that because they know full well that by the time the consequences of their actions are exposed they will have moved on and be working elsewhere. They will have moved on having taken their own handsome remuneration from those organisations—all based on performance criteria which are underpinned by the bottom line profit of the company or firm that they are working for. Those kinds of practices, and practices which I referred to earlier, are not only dishonest but in some cases fraudulent. When we see some of those practices it is not surprising that some of those executives have ended up in jail. What is even more concerning and disturbing is that even as their failed organisations were going down senior executives were squandering company funds on lavish self-indulgences.

I heard the shadow spokesman refer to performance based criteria in contracts and the fact that this kind of bill may be a problem for such contracts. I have some experience in sitting around a table trying to determine whether a CEO has met the performance criteria that were expected of him. It is my absolute and clear conclusion that performance based contracts are nothing but a sham. Trying to determine and measure true performance is near impossible when in most cases the performance criteria are usually set in advance of the person being employed and are set in a way which would make it almost impossible to refute the CEO’s or executive’s claim that they have achieved their performance targets. So they become nothing more than a sham and nothing more than an opportunity for CEOs and executives to claim additional payments from the companies or firms that they work for. I am not persuaded by the opposition’s concern about that point; nor am I persuaded by the other matters that the shadow spokesman raised in his response to the bill.

This bill may well not solve all the problems that I have referred to and it may well not fix all of the concerns that I have with the way many CEOs and executives operate, but it is a welcome start. It is a start in the right direction. It is a start that I believe will be widely supported by the Australian people and, more so, a start that I believe that the Australian people would be expecting of this government. I commend the bill to the House.

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