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

Thank you, Mr Deputy Speaker. It is nice to see you after the break nice and comfortable in your seat. I rise to give my strong support for the Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Bill 2011, or, as I call it, the 'handbrakes for handshakes' bill. I say from the outset how proud I am to be speaking on a bill that addresses an issue that has long been a bone of contention for many Australians but, unfortunately, has been all too readily relegated to the political too hard basket.

Most Australians would agree that executives who put in the hard yards, who produce good results for their shareholders, their company and the community, and who treat their employees well deserve an appropriate remuneration. Certainly, in an increasingly global jobs market, Australian companies need the flexibility to compete for the best CEOs and executives. Our world-class companies need world-class leaders. Hopefully, they will be led by Australians, but sometimes the best person for the job might be from another country. Nevertheless, many Australians are fed up with the largesse of executive salaries and the gross excess of corporate greed.

For example, in 2010 the Commonwealth Bank's CEO, Ralph Norris, pulled in more than $16 million in total remuneration, including salary, incentive payments and bonuses, superannuation, shares and other benefits, or $43,835.62 per day. That is about $8,000 per hour before tax, rounded up. Woodside Petroleum's Don Voelte took home $8.3 million—up a ridiculous 210 per cent from 2009. I choose these two companies first and deliberately, but also we could look at Rio Tinto's Tom Albanese, who earned $9 million—a staggering 328 per cent rise on the previous year. I worked in industrial law for awhile, and you do not often find increases such as a 328 per cent rise slipping through Fair Work Australia. With average yearly earnings for ordinary Australians at around $60,000, even the most diehard free marketers opposite would have to agree that these numbers and increases are nudging towards greedy. People of faith, whatever their god or creed, might even suggest that for every individual there is actually a salary ceiling and that once one goes beyond this amount one can only be defined as avaricious.

Thankfully, my good friend the Parliamentary Secretary to the Treasurer, David Bradbury, has demonstrated the courage and the conviction to do something about excessive CEO pay packets. In the last parliament, the Labor government passed legislation to address excessive payouts for executives and company directors by giving shareholders greater veto power over the so-called golden handshakes. This bill implements the recommendations of the Productivity Commission to beef up the regulation of executive pay. It is about: (1) improving accountability, (2) giving shareholders more information and (3) eliminating conflicts of interest in the process. It amends the Corporations Act 2001 to strengthen the non-binding vote on remuneration. It introduces a two-strikes test—not a three-strikes test but a two-strikes test—that requires the board to stand for re-election when they do not adequately respond to shareholder concerns over two consecutive years. When a company's remuneration report receives a 25 per cent or more 'no' vote, they receive a strike. Two strikes in two years will trigger a spill resolution whereby the board will be required to stand for re-election within 90 days. That is: two strikes, not three, which would then mean that they are out of here.

Directors and executives will also be excluded from voting in the non-binding shareholder vote on their own remuneration and on the spill resolution. This provision strikes the right balance and sends a strong signal to boards that want to push the boundaries of executive pay. Those boards that approve excessive packages for directors and executives will run the gauntlet when it comes to the shareholder vote. No longer will they be able to use shareholders as a rubber stamp for outrageous pay packets.

This bill will also put a stop to directors and executives hedging their incentive remuneration. This will ensure that their remuneration is linked only to performance. This initiative ensures that management is rewarded for looking after the interests of shareholders and vice versa, not themselves exclusively. It will also simplify the remuneration report by limiting disclosures to the key management personnel of the consolidated entity only.

Recent surveys that have received a bit of media attention show that more and more Australians are investing in shares; therefore we need to make it easier for all shareholders—both the experienced investor and the novice—to understand a company's remuneration arrangements so that they can then make an informed vote.

The legislation before the House will also reduce the regulatory burden on companies, which is another example of the Labor government slashing red tape. The bill also seeks to eliminate the conflict of interest that can arise with remuneration consultants. It is sometimes the case that these consultants are asked to provide advice on the remuneration of officers who can influence whether their professional services are used again in the future. It could be seen to be in the consultant's interests to provide advice the executive directors want to hear concerning their remuneration, and obviously this does not pass the common sense transparency test. So, to ensure greater independence, this bill will require these consultants to first report their advice to non-executive directors or the remuneration committee rather than the actual company executives.

This bill will help address the growing community concern about the executive pay of our companies. Most importantly, it also sends a strong signal to corporate Australia that enough is enough. To be fair, all companies have had their chance to rein in corporate greed but some have failed to do so. The Gillard government have had no other option than to act and I am very proud that we have. I look forward to the next speaker supporting this legislation along with the rest of the opposition. I commend the bill to the House.

Alex Hawke (Mitchell, Liberal Party) Share this | Link to this | Hansard source

I rise to support many of the provisions contained in the Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Bill 2011. However, the member for Moreton presented me with an interesting opportunity to make comment on some of the intentions of the Gillard government and their methodology in conduct their legislative program in this House, and I am happy to take up that opportunity. I start by making a deeply personal confession to this House: my rugby league team is not doing very well at the moment. It is a source of great personal concern to me and it is something I struggle to cope with every day lately. I note the member for Moreton also supports a very lousy NRL team for different reasons.

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

Premiers.

Alex Hawke (Mitchell, Liberal Party) Share this | Link to this | Hansard source

Yes, they are much worse than mine. The Eels are doing badly at the moment, but I know the member for Moreton would agree with me that when Wayne Bennett became available this year and was seeking to coach another club, he would not have been concerned at the thought of his club paying the $3 million, $4 million or $5 million price tag to get Wayne Bennett. They certainly need him! He knows that you have to pay the price for the best in the business. Many Australians would understand that when you want someone to do a job, you have to pay them the remuneration that they deserve.

Instinctively, I do not have a problem with shareholders and boards setting an appropriate level of remuneration for their executives. I think it is lame for members of the government to come into this House and provide specific examples of executive remuneration, without reference to the performance of those companies. This legislation is intended for those people who take what is regarded as an unacceptable remuneration when the company involved has not performed, where there is no return to the shareholders. But it is the responsibility of shareholders and the owners of these companies to set that remuneration and to rise and fall on the merits of their decisions.

Once again, we are seeing a constant procession of Gillard government backbenchers in this place, whether it be the member for Fraser or the member for Moreton, wanting to dictate terms on how to run corporations and what should be a fair level of remuneration. It is a notion that I reject. I am more a proponent of the Adam Smith model, the invisible hand in the economy, that says that these things will work themselves out—and they should be worked out by those people.

Too often in our society today we want a great return, big bucks, for our shares. That is a great thing, a good instinct, but when a company fails, we cannot separate the concept of risk from return. There is a risk in investing in companies and there ought to be risk. There are successful companies and we want to make sure that we have a government that runs a great economy that allows for great success. But of course there will be failure.

Some of the provisions in the legislation before the House today improve the ability of shareholders to have a greater say over the management of their corporation. We do not instinctively oppose those provisions. There should be transparency in regulation. There should be great transparency for shareholders in what happens within their own entities. It is important that government backs up that principle wherever possible. Some of the provisions in this legislation can assist that. We are reducing the level of complexity through some of these provisions and they are noncontroversial from the opposition's point of view. However, in other ways, this legislation does not recognise that in recent years there has been a great correction in many businesses and in the activities and interests of shareholders. And that is a good thing. I note Wesfarmers capped salaries and reduced bonus payments a few years ago. That was a great example of the market correcting itself. If I was a shareholder in an enterprise and I was speaking to shareholders around this country, I would tell them that this is something they should pay attention to. This is something they should take a great interest in. For every good example of course there is a bad example, but I say to every member in this place: we have more good examples than bad examples, and Wesfarmers is a very good one.

I agree with the member for Bradfield who made the peculiar point about baseball, where too often in public policy we seek to make simplistic policies, two strikes and you are out, referring to a sport that really has no connection with good public policy. In reality, if baseball had five strikes and you are out, it would be five strikes in policy. It is quite populist nonsense. As proposed, the coalition have some concerns with this two-strikes rule. I agree with the coalition's amendments. The member for North Sydney and others have foreshadowed an amendment when it comes to the level of support required to reject a remuneration report, which can lead to a spill of the board—a very dramatic turn of events within a corporation—where the bar has been set too low. This amendment will reduce the two-strikes rule not just to 25 per cent of votes cast but 25 per cent of the total amount of votes. I think it is a very worthy amendment for the government to consider.

If you set this threshold too low, we will not be assisting the ability of companies to perform well and to get on with the business that they need to be getting on with—that is, running their own entities, primarily. We should not disconnect what a senior executive is and the source of those business traditions. In the 1800s, as corporations grew, there was a need for particular managers to not just manage the business but manage the interests of shareholders within corporations. This is a very important concept. Today that is still the role of senior executives. They are there to manage the interests of shareholders, the people who have invested funds in those businesses. Any good senior executive sees the interests of his or her shareholders as their prime responsibility, and so it should be. Of course there will be those who do not do that. Telstra, notably, is a good example of the system not working. But I say to those sceptics: in situations like Telstra where there was a massive government monopoly, the process of deregulation and the privatisation of Telstra will be fraught with difficulty until we get to a more free market approach in this country. In Sol Trujillo's time there was a very interesting situation. When the company was performing badly in terms of its share price, the situation of the chief executive's pay structure and the board's pay structure was outrageous. Shareholders have a right to do that and an obligation to regard it as unacceptable and to do something about it. So, in terms of what this bill proposes, you can see in the government's efforts some good attempts to fix some of these problems. When we say remuneration should match performance, again that is something that is very difficult for us to regulate specifically. The proposal in this bill to change regulation with respect to the use of remuneration consultants is fraught. We cannot design a regulation or legislation to say you should use consultants in a certain way and should derive a certain outcome. That is going to be fraught with a whole series of undesirable and unintended consequences if this law is passed. Businesses are complex; the modern economy is complex. Often these attempts by Labor governments in particular, where their instinct is to regulate first and think later, lead to things that we do not want. While we may be doing things like prohibiting the hedging of incentive remuneration, and there are certainly issues around that and some worthy objectives about how proxies can vote and other things, specifically mandating about the use of consultants and how to apply a remuneration consultant again I do not think is going to add a lot of value to this process. It will not deal with what the member for Moreton just raised as a concern. I do not think it will deal with what the member for Fraser raised as concerns. Yet it does have the capacity to create opportunities for inadvertent criminal conduct. The fact that this will be backed by criminal sanctions again expands the concept of personal risk at the senior management level.

When you think about why someone would be paid such an amount of money, we need to remember that this is not the Middle Ages; this is not a person who has been born into this role—not a person who has inherited it; not someone who has the absolute force of government to appropriate wealth off ordinary citizens. These are people who primarily earn their wealth; who are being paid to perform at a very, very high level under pressure that most of us are not under, at a personal risk level, and in the face of criminal conduct. This bill adds to that burden, and I note that for the House. We are adding to the personal risk taken on by a director and the potential opportunity for them to be sent to prison by the government for acting inappropriately. Of course the government has a role to regulate and legislate, and company directors need to act ethically and within the law. It is important that we make sure they do.

The member for Fraser came into the House and went on with an expansive diatribe about who has wealth in our society. In one sense I am happy about that because it is the genuine socialist intention of the Labor Party coming to the fore in the member for Fraser, and I say we should have more of it. When socialists were socialists and conservatives were conservatives, I think things were better. With the modern Labor Party today it is hard to work out what they are. The member for Fraser certainly went on with a diatribe about who holds wealth in our society. What he failed to recognise with the increase in personal wealth of the top one or two per cent or the top five or 10 per cent was that with that increase in personal wealth came a massive increase in the wealth of our entire society. What we are seeking as a government and as a nation is to increase the wealth of all of us, to increase the ability of a person to earn a living, to have access to opportunity to make good for themselves. We should not instinctively get upset about it when somebody does well for themselves and earns a great pay packet, even if it is more than ours. I can tell you, each one of those people named by the member for Fraser and the member for Moreton earns probably more than I ever will in my lifetime, but I do not have a problem with that. It is the best system devised by man. As Winston Churchill once famously said, democracy is the worst of all systems, except for all the rest. He was right about that. Some people lament that capitalism produces very wealthy people, but capitalism lifts everybody in our society. Every other system that the member for Fraser mentioned drags everybody down—workers get dragged down, corporations get dragged down, executives get dragged down. That dragged-down model that the member for Fraser highlighted as a paragon of virtue makes us all poorer. It has been established in every Eastern European country and other parts of the world that experienced communism or socialism that to the greater degree they had such a system, the poorer their nations were. Many of them are still going through great reconstruction.

I do think that, every time a government backbencher comes in here and says that we have some individuals in our society, whether they be a Wayne Bennett or a company executive, who make more than the rest of us, we have to remember that Wayne Bennett is lauded as a hero in our society regardless of how much money he makes. And so he should be. We should not deride and denigrate those architects of great wealth in our society who are in the private sector. Every time this government says it has created all these jobs, I say it has not created those jobs; they have been created by the capacity of the private sector to invest and to create and grow the wealth of our nation. They are the people who do those things. They are the people who generate the jobs. Every day the Prime Minister says they have created so many jobs. The only jobs she has created through her pink batts scheme and other great spending schemes have come at an exorbitant cost that nobody would pay. If we had the same accountability that company directors face every day from shareholders and regulation, and other systems in this place, I do not think this government would stand up to much scrutiny at all in terns of its expenditure and use of public money and the cost per job of the jobs it says it has created. Any cost-benefit analysis of the jobs created by government expenditure would show they are not competitive with jobs in the private sector. In fact, the cost is exorbitant, lavish and unsustainable.

That is why on legislation like this I am happy to speak in favour of provisions that empower shareholders and give them greater transparency and allow them to carry out their legitimate function, but I do say to the government that this is not an opportunity for them to denigrate those individuals in our society who work so hard and produce great wealth for everybody. It is not the opportunity to lament a system which allows all of us to earn more and do better. We have great small businesses in our country that can become medium enterprises or large enterprises, and that is a great thing. We have people who can start their own enterprise and become very wealthy, and that is a great thing. We have people who choose to become senior executives or managers of companies in our society, and they should be free to earn what they deserve to earn, as decided by their shareholders and other people. This narrative that the government is building around this bill does not match the reality of what these provisions are actually going to do. Many of these provisions are good and ethical, and many of them I think will add to the regulatory burden, which will create greater and greater risk. My main point in supporting this bill is simply that we should not always seek to regulate first and think later.

Shayne Neumann (Blair, Australian Labor Party) Share this | Link to this | Hansard source

I support the Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Bill 2011. When I heard the member for Mitchell speaking about communism and socialism I thought I was back in the 1940s and 1950s. He never gets past history lessons—it is extraordinary. The member for Mitchell and so many of those opposite truly believe in Reaganomics, the trickle down, giving bits and pieces, cents and pennies to the serfs, while they suck up to the captains of industry. It really is quite extraordinary.

We are looking at transparency and accountability in corporate Australia. Those opposite parade and pose about being supporters of the market and free enterprise. Yet it took a Labor government to bring in trade practices legislation in 1974 and consumer and competition reform. Those opposite did not do it. Did those opposite want to open up the banking system? No, they did not. It took a Labor government to do that—to lower tariffs, to internationalise the economy, to float the dollar, to bring in superannuation, all the great reforms with respect to economic development. But the idea of those opposite when they were in power was simply to tax the Australian public and they never found a rort they did not want to support with respect to middle-class welfare. They always side with big tobacco, big distillers and big business.

We hear speeches from those opposite saying this sort of thing all the time, accusing us, through this legislation, of communism or socialism. For heaven's sake! We are trying to empower shareholders. We are trying to strengthen the regulatory framework to empower shareholders when their outrageous and egregious rorting of what the average person would think is overly generous executive remuneration takes place. That is what we are trying to do. I have heard the member for Mitchell speak. You would not think he was speaking in support of the legislation. You would not think those opposite actually support the legislation but in fact they do because they know very well that when you go to AGMs for public companies and to corporate boardrooms executive remuneration is always a topic of discussion.

We know that the Australian public does not like egregious executive remuneration packages and we know that particularly in view of the global financial crisis. We know what happened in America, across Europe and in this country at that particular time. Did we see a diminution in the payouts given to executives? Many of those companies failed. I am not going to start naming those companies here. It was on the public record. Australians, Americans, Europeans and people across the globe saw payouts from government, we saw bank guarantees and massive amounts of taxpayers' dollars propping up the corporate sector—banking, finance and business. Yet did we see the reciprocity of stringency? Did we see thriftiness? Did we see cutbacks generally from the corporate barons? No, we did not. We saw those people take the public money but they kept the private money for themselves in their profits.

Middle- and working-class Australia supported the corporate sector during the global financial crisis. Taxpayers did it. That is why we went into deficit—to support jobs and to support the business sector. Still there was no mutuality from the corporate sector. We did not see the same degree of frugality that was necessary.

Here we are making sure that mums and dads who are shareholders, small business operators, middle Australia, battling Australia, people who have been doing it tough in the past few months, in cyclones, floods and fires across this country, who are shareholders through their superannuation funds or privately in their family financial arrangements, have a better say with respect to corporate democracy and greater transparency and accountability, but those opposite cannot even see that. They make speeches in this place like the member for Mitchell, putting up straw men and hailing to the chief of Reaganomics.

The trickle-down effect is what those opposite believe in. We believe in free markets and we believe in free enterprise. We think that giving small business operators and mums and dads who are shareholders a greater say in corporate democracy will be good for the Australian economy, good for financial security and good for regulatory and corporate practice. That is why we are doing what we are doing. And, I say to the member for Mitchell, we are following the advice of the Productivity Commission.

As far as I am aware, the Productivity Commission is not affiliated to the Australian Labor Party. It is full of people who actually believe in free enterprise, who recommend in the main that we adopt free enterprise solutions with respect to economic prosperity and the economic development of the country.

In April 2010, the government announced reforms to strengthen the remuneration framework in response to the Productivity Commission's report. Does the member for Mitchell think somehow that the Productivity Commission is a bunch of closet communists or socialists? I do not think so. You can read any of their reports with respect to so many areas—for example, they handed down a draft report on aged care earlier this year. I cannot see that somehow that is full of communist rhetoric or is something Karl Marx would have loved. We have taken up this particular recommendation from the Productivity Commission and we have carried it out.

The Productivity Commission actually said that corporate Australia in terms of its governance and remuneration framework was amongst the best in the world and ranked high internationally. That is what they recommended. They made a number of recommendations which would improve that and this bill contains those measures. The Productivity Commission made clear that directors need to be accountable to shareholders for decisions with respect to executive remuneration, to address conflicts of interest, particularly with respect to setting the processes for executive remuneration. The Productivity Commission recommends things and we have followed up those recommendations. The point of the matter is this—and those opposite should really take note of this. The catalyst for this inquiry was the concern that executive pays had got out of hand. Some people in this place have actually listed some executive pays. Let me say this about the banking sector in this country—the big four—which, through the global financial crisis, benefited from the federal Labor government's management and its provision of bank guarantees. They have some of the highest paid executives in the country, with the Commonwealth Bank of Australia now at the top of that list. Their chief executive, Ralph Norris, earns a remuneration package of $16.2 million. He might have skills, talent and ability which deserve money in the marketplace, but if you were a police officer and your wife a part-time secretary and you were living in flood affected Booval, in my electorate, you would think that $16.2 million is a pretty large salary.

That is not the only example. There are people like Westpac chief executive Gail Kelly, who earns $9.6 million. We want to make sure that, if these types of salaries are paid, shareholders have a say in decision making about it and that it is not simply driven from above, with boards of directors running the show in a way that lets them set their own remuneration with little transparency, accountability or corporate democracy.

The chief executive of the Australian Shareholders Association recently welcomed this report, saying:

The Global Financial Crisis demonstrated the consequences of excessive risks taken by many companies and their executives. We saw corporate collapse and billions of dollars of shareholder value disappear into thin air from poor management decisions. However, executives were never really held accountable.

He also said:

We have long argued that the interests of directors and executives should be aligned with those of shareholders and the community. It seems somewhat difficult for the average Australian to comprehend how his or her job and financial survival can be constantly questioned, while senior executives can preside over huge losses and destruction of value, and at the same time receive a bonus.

This bill does address those concerns. It contains a provision to subject directors to greater scrutiny and accountability through the two strikes test, which people have talked about, if they do not respond to shareholder concerns on remuneration issues. The provision will give shareholders the opportunity to remove directors if the company's remuneration report receives a 'no' vote of 25 per cent or more at two consecutive annual general meetings.

New transparency requirements will apply to remuneration consultants—and I know the member for Mitchell is not happy about that—where there are conflicts of interest. The package eliminates those conflicts by prohibiting directors and executives who hold shares from voting on remuneration issues. I cannot see how that is a problem. If there are conflicts of interest in local government, people abstain. I have been on the board of numerous church and charitable organisations and, if there are conflicts of interest, people abstain. I cannot see a problem in that regard with respect to corporate Australia.

The bill will ensure that shareholders have the ultimate say in the composition of the board. Public companies will be required to obtain the approval of shareholders in order to declare, at a company meeting, that there are no vacant board positions. And that is the way some boards of directors run the show at times—you get your little group together and, if you are all of one mind, you can all look after one another. We want to make sure that that is open and transparent as well.

I think the bill demonstrates the proactive leadership of the government in this regard and I think the average Australian will think it is appropriate to empower shareholders in this way. I think the average Australian in my electorate—in Blair, in Ipswich or in the Somerset—will think that we are responding appropriately to the Productivity Commission report and that we are doing the right thing by investors.

I think that corporate Australia needs to have a look at community trust. I think there is a fundamental issue in that regard. I think corporate Australia really needs to have a look at that. We understand that there is a shift to incentive pay structures. We understand that—that is what is happening globally and, if Australian companies want to compete in the global market, that has to occur. We can understand wanting to hire the best person for the job and the need to pay that person appropriately—to structure the pay, the salary and the remuneration to maximise their performance. When I was in business myself, as a senior partner of a law firm, and I hired staff, I did that—I made sure I got the best person possible and I paid them the best salary I could to do so. It has often been described as a war for talent. We know that.

But we cannot pay egregious salaries in a way that betrays community trust. The instances of excessive executive payments and perceived inappropriate behaviour simply reduce the confidence of investors and reduce the confidence of Australian taxpayers, and the Australian community generally, in the corporate sector. We do not want corporate Australia to be criticised by the Australian public; we want the Australian public to support the corporate sector. We want that because we want to make sure that every kid who lives in my electorate and electorates across the country can have a job, get financial security and achieve everything they want in life. We want those kids to aspire to become teachers and doctors and lawyers and company executives and engineers and politicians and physiotherapists. We want them to achieve everything they want in life, but we do not want them to lose trust in the employment arrangements of corporate Australia, whether the employer is in banking, finance, superannuation or anything else.

This legislation is good. It is not about communism; it is not about socialism; it is about supporting community trust in the corporate sector in this country. It is about transparency and accountability. It is about good practice. It is about making sure that boards are accountable to shareholders in the way the Productivity Commission recommends. This is not about a betrayal of free enterprise and the market system; this is about strengthening that. It is only Labor that truly believes in free enterprise and it is only Labor that truly believes in the market economy. Those opposite say one thing but when they get into power they do something else. The whole history of the Liberal Party is about betraying the workers and the forgotten people that Robert Menzies claimed the Liberal Party should aspire to support. Their whole purpose has been to betray and to be on the side of big business, and that is why the member for Mitchell make speeches such as the one he made tonight. (Time expired)

Debate adjourned.