Chris Pearce (Aston, Liberal Party, Shadow Minister for Financial Services, Superannuation and Corporate Law) Share this | Link to this | Hansard source

by leave—I move amendments (1) to (3), as circulated in my name, together:

(1)    Schedule 1, item 1, page 3 (lines 6-7), omit the item, substitute:

1 Section 9

Insert:

total remuneration has the meaning specified in regulations made for the purposes of this definition.

(2)    Schedule 1, item 31, page 9 (line 13), to page 10 (line 25), omit the item, substitute:

31  Subsections 200F(3) and (4)

Repeal the subsections, substitute:

        (3)    This subsection applies if the relevant period for the person is less than 1 year. The amount worked out under this subsection is:

where:

estimated annual total remuneration is a reasonable estimate of the total remuneration that the person would have received from the company and related bodies corporate during the relevant period if the relevant period had been 1 year.

Note:   The relevant period for the person is defined in subsection (5).

        (4)    This subsection applies in every other case. The amount worked out under this subsection is:

             (a)    if the relevant period is 1 year—the total remuneration that the person received from the company and related bodies corporate during the relevant period; or

             (b)    if the relevant period is more than 1 year but less than 2 years—the average annual total remuneration that the person received from the company and related bodies corporate during the relevant period, worked out as if:

                   (i)    the relevant period were 2 years; and

                  (ii)    the person’s annual total remuneration for the second year were a reasonable estimate of what the person would have received as total remuneration after the first year of the relevant period had the relevant period been 2 years; or

             (c)    if the relevant period is 2 years—the average annual total remuneration that the person received from the company and related bodies corporate during the relevant period; or

             (d)    if the relevant period is more than 2 years but less than 3 years—the average annual total remuneration that the person received from the company and related bodies corporate during the relevant period, worked out as if:

                   (i)    the relevant period were 3 years; and

                  (ii)    the person’s annual total remuneration for the third year were a reasonable estimate of what the person would have received as total remuneration after the second year of the relevant period had the relevant period been 3 years; or

             (e)    if the relevant period is 3 years or more—the average annual total remuneration that the person received from the company and related bodies corporate during the last 3 years of the relevant period.

(3)    Schedule 1, item 37, page 11 (line 4), to page 12 (line 11), omit the item, substitute:

37  Subsections 200G(2) and (3)

Repeal the subsections, substitute:

        (2)    This subsection applies if the relevant period for the person is less than 1 year. The amount worked out under this subsection is:

where:

estimated annual total remuneration is a reasonable estimate of the total remuneration that the person would have received from the company and related bodies corporate during the relevant period if the relevant period had been 1 year.

Note:   The relevant period for the person is defined in subsection (6).

        (3)    This subsection applies in every other case. The amount worked out under this subsection is:

             (a)    if the relevant period is 1 year—the total remuneration that the person received from the company and related bodies corporate during the relevant period; or

             (b)    if the relevant period is more than 1 year but less than 2 years—the average annual total remuneration that the person received from the company and related bodies corporate during the relevant period, worked out as if:

                   (i)    the relevant period were 2 years; and

                  (ii)    the person’s annual total remuneration for the second year were a reasonable estimate of what the person would have received as total remuneration after the first year of the relevant period had the relevant period been 2 years; or

             (c)    if the relevant period is 2 years—the average annual total remuneration that the person received from the company and related bodies corporate during the relevant period; or

             (d)    if the relevant period is more than 2 years but less than 3 years—the average annual total remuneration that the person received from the company and related bodies corporate during the relevant period, worked out as if:

                   (i)    the relevant period were 3 years; and

                  (ii)    the person’s annual total remuneration for the third year were a reasonable estimate of what the person would have received as total remuneration after the second year of the relevant period had the relevant period been 3 years; or

             (e)    if the relevant period is 3 years or more—the average annual total remuneration that the person received from the company and related bodies corporate during the last 3 years of the relevant period.

The coalition has proposed these amendments because we believe they will improve this bill. I appreciate the remarks that the minister made, saying that he thinks I am a good bloke. I think he is a good bloke as well. I appreciate that. You are right when you say I am a good bloke. I must say it is true. It is one of the most accurate things you have said.

What I do not appreciate from the minister is his remarks in terms of understanding policy positions. I think it is important for the House to remember that this is the same minister who has quite an interesting policy history. I remember Fuelwatch, GroceryWatch and employee share schemes—three policies that the minister said were vital and were critical for the Australian people to have. Of course Labor walked away from all three policies after the minister realised that his particular bills and policies would not work. This is another example of where this minister is going along with the bill where he has not thought through the implementation and practical consequences. The reason we are proposing this—and I call upon the minister to apply his logic, because he is a logical person—is that, if this bill goes through without the coalition’s amendments, base salary and therefore total executive remuneration will increase.

If the minister is happy to see total executive remuneration increase, to see shareholders having to carry the burden of even higher fixed costs in the companies of which they hold shares—if that is his intent—then that is what is going to happen if he does not accept these very sensible amendments. If he wants to reduce the multiplier from seven years to one year that is fine but to put that multiplier against base salary will only increase base salary. The minister referred to the Senate Economics Legislation Committee. There was a lot of evidence at that committee inquiry, and the bulk of the evidence—by far the majority of the evidence—substantiated our position on this.

The government likes to quote organisations like the Business Council of Australia when it suits them. They like to quote the Australian Institute of Company Directors when it suits them. They like to quote the Australian Bankers Association when it suits them. But I notice the minister is not quoting them tonight. This is because, in their evidence, they all supported the coalition’s premise that, unless you make these amendments, executives are going to receive substantial increases in their base salaries. Therefore, the objective of this bill would be defeated. Moreover, the other dynamic is that this bill is in relation to termination payments—in other words, when the executive leaves. International experience reveals what is going to happen. I know the minister has had his problems with policy development—and I have given three examples—but I can tell him, I used to work in corporate life. Another thing that will happen here is that organisations will just put the bonus on the front end, on the way in. So, instead of having a golden handshake they will have a golden hello or a golden welcome cheque—a sign-on bonus—and, again, executive remuneration will go up.

If the purpose of this bill is to empower shareholders, to make sure that executives are paid in accordance with company performance, why would you take away the at-risk component? Why would you allow the guaranteed or fixed component, the base salary component—the salary that the executive gets regardless of the performance of the company—to increase? And why would you allow the opportunity for an executive to get a golden hello, which is not based on performance, even before they have started to work in the organisation?

Our amendments are logical. What we are saying is that our amendments will preserve the link between executives having their remuneration based on the actual performance of the company. That is aligned with the shareholders’ interests. At the end of the day, that is a very important point of corporate governance that must be maintained—executives’ interests being aligned with shareholders’ interests. If you are an executive in a business and you know, regardless of the performance of the company, that you are going to get a whopping base salary, what interest is there for you to make sure that the company performs? (Time expired)

Chris Bowen (Prospect, Australian Labor Party, Minister for Financial Services, Superannuation and Corporate Law) Share this | Link to this | Hansard source

The member for Aston has just had the opportunity to explain to the House how on earth it could possibly be consistent or logical for the coalition to propose this amendment tonight if it remains its position that all executive remuneration should go to shareholders. He had the opportunity. He talked about lots of things. He talked about other policies. But what he did not talk about was this policy. How is it consistent for the member for Aston to argue that fewer things should go to the shareholders and for the member for Wentworth to argue that everything should go to shareholders? How could that possibly work? The member for Aston has had his opportunity to outline it to the House—I asked him to do it in my remarks. He has failed to do it. He failed to do it because it cannot be done. He failed to do it because it is internally inconsistent. It is illogical. There is no possible way that the opposition could argue that every dollar of executive remuneration should go to shareholders for approval—except the bits they do not think should go to shareholders for approval by moving this amendment.

The member for Aston said he supports moving from seven years to one year. But what he is doing is increasing one year by stealth. He is increasing the base. He is saying that what should be considered is broader than base salary; therefore, he says it should be total remuneration. What that does is very considerably increase the threshold before shareholders have to approve of it; therefore, far fewer decisions will go to shareholders for approval. He, by stealth, is undermining the intent of this legislation. So we will not be supporting and accepting the opposition’s amendment, because it makes no internal sense. It is inconsistent with their previous policy positions and will, by stealth, undermine the policy objective of this legislation.

Chris Pearce (Aston, Liberal Party, Shadow Minister for Financial Services, Superannuation and Corporate Law) Share this | Link to this | Hansard source

The minister wants to come in here and talk about consistency. Really! This is the minister with the failed Fuelwatch, the failed GroceryWatch and the failed employee shareholder scheme. I understand. I could be wrong—the minister could clarify this—but I do not think this minister has ever actually had a job outside of politics. I do not think this minister has ever had a job in which he would have been paid a base salary and performance pay. To my knowledge—and I could be wrong—the minister has never had a job in the corporate world. That is part of the reason why we have policies coming before the parliament such as Fuelwatch, GroceryWatch and employee share schemes. The point I am making about this bill is that I am applying logic to it. What I am saying is that executive pay is made up—

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

Madam Deputy Speaker, I rise on a point of order. I ask the shadow minister to come back to the purpose of the bill and the matters that we are debating.

Chris Pearce (Aston, Liberal Party, Shadow Minister for Financial Services, Superannuation and Corporate Law) Share this | Link to this | Hansard source

That is right; the same standing order applies to the minister. What we are saying is that in the real world, Minister, what is going to happen is that shareholders’ interests will not be satisfied by this particular bill as it stands. That is what is going to happen, because in the real world a portion of executives’ pay is base salary but the vast majority of it is short-term and long-term incentives. That makes up their total remuneration package. What one wants is the vast majority of their remuneration package to be subject to performance. You do not want the base salary, the guaranteed component, not to be subject to performance—to be guaranteed pay every fortnight or every month—but that is what is going to happen with this bill. Instead of an executive getting 30 per cent base salary and 70 per cent based on performance, what will happen is that it will be the other way around. They will get 70 per cent as base pay—it will not matter how the company performs; the base pay will be ratcheted up—and the minority of the salary will be based on performance. How can that possibly be in the interests of shareholders? What shareholders want is their company to perform and the people who are running the business to be paid on the actual performance of the business. Minister, that is what happens in the real world and that is what is going to happen.

The same point is: how can it possibly be in the interests of shareholders for golden haloes to start happening instead of golden handshakes? You might think that you are going to get rid of this problem, but what is going to end up happening is that Australian executives are going to get paid more guaranteed remuneration in their hand every month as a result of this bill. Minister, what we are trying to do here is to say to you: ‘You want to reduce seven years to one? Fine; absolutely. But if you go to total annual remuneration what will happen is that you will keep the link between the performance of the company—therefore, the shareholders’ interests will be satisfied—and the executives’ pay, which will be based on the performance of the company.’ Your bill, Minister, is going to take that link away. There will be no incentive for the executives to ensure the company performs well, because what will be in it for them? They will have their guaranteed huge base packages. Base salaries will go up because executives will want certainty and companies will just pay them more. If companies do have to pay them a termination payout, the base salaries will be so huge that they will not need to go to the shareholders. They will have so much scope because the base salaries will be enormous and so they will not have to go to the shareholders. So in fact what you are doing is diminishing shareholders’ power—and I am sure that is not the intent of the bill. All we are saying is use your logic, look at this sensibly and say that this is a way in which the objectives that the government is seeking can actually be achieved.

I will end my remarks there. I will not speak on the bill again but I implore the minister to consider our recommendations in good faith.

Chris Bowen (Prospect, Australian Labor Party, Minister for Financial Services, Superannuation and Corporate Law) Share this | Link to this | Hansard source

Very briefly: the member for Aston has had 10 minutes to explain to the House how the two positions are consistent. He has abjectly failed to do so—he did not address the issue again. This just underlines the policy bankruptcy of this opposition. He knows it. We will oppose the amendment.

Question put:

That the amendments (Mr Pearce’s) be agreed to.