Minister for Superannuation and Corporate Law
3 December 2007 - 8 June 2009
Interview with Ali Moore
Lateline Business, ABC
Wednesday, 18 March 2009
SUBJECTS: Government's proposed changes to executive termination payouts
ALI MOORE, PRESENTER:
The Government is changing the law to require shareholder approval for all executive termination payouts above one year's salary. As well, former ACCC boss Alan Fels and the Productivity Commission will hold an inquiry into the broader issue of executive pay. The Minister for Corporate Law is Nick Sherry. He joined me from Canberra earlier this evening.
Nick Sherry, welcome to Lateline Business.
NICK SHERRY, MINISTER FOR CORPORATE LAW:
Thank you. Good evening. Good evening to your listeners.
How common do you think excessive golden handshakes and excessive salaries are in this country?
Well in terms of the golden handshakes, the reforms we've announced today, I believe we've seen a significant shift over the last 10 years or so, and according to the figures I've seen we're seeing payouts terminations of double, at least double, of the CEOs pay, and this shift at a time when workers are losing their jobs. And, as I said today, the days of the gold watch have been replaced by a truck of gold bars. We've got to change this culture in Australia.
But do you think it's common or do you think it's the exception, and how do you define "excessive"?
Well, I certainly don't believe that it is reasonable that a golden parachute termination payment should exceed one year's pay. I just don't believe that that is appropriate. And, at the end of the day, it's now going to be the shareholders' call. There is rightly a lot of concern, genuine concern about this in the Australian community as well as the shareholding community.
So that one year base salary will be the benchmark for when shareholders get to vote on a termination payment. Will that base salary include accumulated benefits such as superannuation or previous bonuses or perhaps share allocations?
It will be base pay only. The one exception is statutory superannuation entitlements - that's the one exception because that's a statutory payment. But in terms of basic pay, it's now to be one year's - not total package - it's one year's basic pay.
Is that gonna provide an insentive for companies to, if you like, bulk up the basic pay because of course the higher the basic pay, the less likely any termination payment is gonna look too generous and have to go to a shareholder vote?
Oh, look, I don't believe so. We've appointed Professor Fels who will, with the Productivity Commission, look very intensively at the other part of the equation. We've addressed today a major focus of community and shareholder concern, these golden parachutes termination payments. I have to say often when payments for failure. And the other part of the equation: I believe Professor Fels will come up with some effective answers.
What difference do you think a binding vote is going to make, given that to date, non-binding votes have only rarely elicited any complaint? You used today a couple of examples; one was that of Owen Hegarty, and in fact that was a rare and headline-making example. More often than not remuneration votes go through unopposed.
Well I believe this will put very significant - very, very significant downward pressure. I mean, shareholders haven't had the right to determine a golden parachute. They haven't had that right. I believe they'll exercise it in the current climate, and we will see significant restraint and downward pressure in this area. I don't believe some of these golden parachutes in the millions and millions of dollars. I don't believe they would have got through a direct shareholder vote. I just don't accept that that would happen.
In a moment we're about to hear the concerns of the chairman of the Australian Foundation Investment Company, or AFIC, Bruce Teele. One of the concerns that he raises as a potential issue regarding this vote on termination payments is what impact it will have on companies as they hire in the international market. Could it be a disincentive because of course any vote on a termination payment will only happen after an executive from offshore has accepted the job?
Well a termination payment golden handshake by its very nature comes at the end of the life of the chief executive, and we believe it's practical and workable. But the broader issue of the impact and any claimed - and I must stress the word "claimed" impact on the ability to recruit internationally - will be examined by Professor Fels. One of the specific terms of reference is to look at Australia's international competitiveness. Having said that, frankly, I am very confident that we've got an abundance of talent in this country of senior management talent, and frankly I think we've got a bit caught up in the Hollywood cult over the last decade or so. You know, everything's been inspired by the need to keep up with the United States. Well, we've seen some of the consequences of that. And I'm very confident we've got, in the overwhelming majority of cases, executive talent in this country who can fit the bill for most of these top positions.
Minister, thank you for talking us to.
Thank you. Good evening.