Nick Sherry (Tasmania, Australian Labor Party, Minister for Superannuation and Corporate Law) Share this | Link to this | Hansard source

Senator Bob Brown, before you outline your amendment and the reasons for it, I indicate that the statement from the Prime Minister’s office will be here very shortly. It will certainly be here before we finish tonight. I just wanted to let you know that I followed it up in the dinner break—it was a very timely dinner break—and it will be here before we finish tonight. I absolutely commit to having it here.

Bob Brown (Tasmania, Australian Greens) Share this | Link to this | Hansard source

I can assure the minister that I have seen that statement and there is nothing new in it at all. There are no specifics and there is no movement and the Prime Minister has done nothing to move towards regulating excessive or greedy executive salaries. I move Greens amendment (1) on sheet 5676 as circulated:

(1)    Schedule 1, page 3 (before line 6), before item 1, insert:

1A  Paragraph 200F(2)(b)

Repeal the paragraph, substitute:

             (b)    the value of the benefit, when added to the value of all other payments (if any) already made or payable in connection with the person’s retirement from board or managerial offices in the company and related bodies corporate, does not exceed the amount worked out under subsection (4).

1B  Subsections 200F(3), (4) and (5)

Repeal the subsections, substitute:

        (3)    For the purposes of paragraph (2)(b), other payments includes:

             (a)    payments of the market value of shares or share-based payments that become exercisable in connection with a person’s retirement from a board or managerial office in the company or in a related body corporate; and

             (b)    payments by way of pension or lump sum, including a superannuation, retiring allowance, superannuation gratuity or similar payment.

        (4)    The amount worked out under this subsection is:

             (a)    if the period or periods during which the person held a board or managerial office in the company or in a related body corporate total less than 12 months—the amount that is in the same proportion to $1,000,000 as that total period is to 12 months; or

             (b)    if the period or periods during which the person held a board or managerial office in the company or in a related body corporate totals 12 months or more—$1,000,000.

1C  Paragraph 200G(1)(c)

Omit “subsection (2)”, substitute “subsection (3)”.

1D  Subsection 200G(1)

Omit “In applying paragraph (c), disregard any pensions or lump sums that section 200F applies to.”, substitute “In applying paragraph (c), the value of the benefit includes any pensions or lump sums that section 200F applies to.”.

1E  Subsections 200G(2) and (3)

Repeal the subsections, substitute:

        (2)    For the purposes of paragraph (1)(c), other payments includes:

             (a)    payments of the market value of shares or share-based payments that become exercisable in connection with a person’s retirement from a board or managerial office in the company or in a related body corporate; and

             (b)    payments by way of pension or lump sum, including a superannuation, retiring allowance, superannuation gratuity or similar payment.

        (3)    The payment limit is $1,000,000.

1F  Subsections 200G(5) and (6)

Repeal the subsections.

This amendment would empower shareholders to decide termination payouts for executives. My reasoning is as circulated. I would ask that that reasoning be incorporated into Hansard. I add that Senator Xenophon supports this Greens amendment.

Leave granted.

The document read as follows—

This amendment to the Corporations Act gives shareholders the power to restrict excessive termination payments for executives.

It requires shareholder approval for any termination payment, including vesting of unvested equity incentives, above $1 million.

Currently, the Corporations Act does require shareholder approval for termination payments above a threshold of seven times the total remuneration. But the provisions are not sufficiently tight to prevent any decent lawyer finding loopholes.

According to recent research by RiskMetrics, boards of most companies surveyed flouted the law to pay departing executives extremely generous packages.

For example, the RiskMetrics survey found the average CEO of a top Australian received just over $3.4 million as a termination payment or 201 percent of their annual salary on termination.

23 of the 33 CEOs surveyed received termination payments greater than $1 million.

The largest termination payment in the survey was paid to former Santos CEO, John Ellice-Flint He received $16.8 million, which included 2.313 million unvested options. The total package assumed that the options were vested at the time of termination. Mr Ellice-Flint’s base salary was $2,691,995. The payout was 625. percent of his annual salary. It also means that unvested incentives in the package (ie shares) if vested at that time were worth over $14 million. This payment was announced one day after the general annual meeting to avoid scrutiny, determined by the company directors at the board’s discretion.

The Greens amendment specifically closes the loophole which allows for the use of unvested incentives as part of the termination payment

Nick Sherry (Tasmania, Australian Labor Party, Minister for Superannuation and Corporate Law) Share this | Link to this | Hansard source

I thank Senator Bob Brown for circulating his reasons. I will be very brief in reading mine. I am sorry; I am not as well prepared as you are, Senator Brown. We have debated this before. I note that the proposal put forward by the Greens is similar to a proposal recently identified by RiskMetrics, an advisory firm. Under this proposal, the Corporations Act would be amended to require that termination payments be capped at $1 million before shareholder approval is required.

I note that commentators have criticised this proposal, as setting a specific dollar threshold may sanction or even encourage termination payments that fall just below this level. They have also noted that a cap of $1 million would indicate that parliament considers this amount to be reasonable, as payments up to this amount would not require a company to seek shareholder approval. In cases of poor performance, however, I doubt that shareholders would consider payment of up to $1 million as justified. Finally, I note that the introduction of a $1 million threshold is arbitrary and does not take into consideration a director’s years of service or annual remuneration.

The government will undertake a review of the regulatory framework relating to director and executive remuneration, including strengthening the current requirements dealing with termination payments. For those reasons, we cannot support the amendment.

Helen Coonan (NSW, Liberal Party, Manager of Opposition Business in the Senate) Share this | Link to this | Hansard source

I should place on record firstly that I acknowledge Senator Bob Brown’s interest in this matter. He has raised it in a number of places and in a number of ways. The Leader of the Opposition, Mr Turnbull, recently—I think at an address to the National Press Club—made a proposal that consideration be given to making some levels of executive pay, at least that of the CEO, if memory serves me correctly, subject potentially to a binding vote of shareholders. That is something that is of interest to the opposition.

I am not in a position to indicate that the opposition supports Senator Brown’s amendment, but it is a matter that will continue to come up and be of interest as we debate various bills to which it may be relevant. The opposition certainly has it under close consideration—the issue but not specifically Senator Brown’s amendment.

Question negatived.

Bill agreed to.

Bill reported without amendment; report adopted.