SUBJECTS: Executive Remuneration, termination benefits.
ROSS GREENWOOD:
Thanks for joining us Chris
CHRIS BOWEN:
Pleasure Ross, good to be with you.
GREENWOOD:
Now do you really think you can get this through Parliament without the Opposition and with the minor parties blocking it potentially?
BOWEN:
Well we'll have to see how we go. It's always a bit of a lottery in the Senate these days but I'm confident that the other parties will do the responsible thing. I have to say in fairness that the Liberal Party will do the responsible thing on this. They haven't indicated as far as I'm aware that they're opposing it and I would be confident that we can get their support.
This is a moderate and balanced measure Ross, which is very sensible. It gives shareholders more of a say in those 'golden handshake's – which is what I think rightly really annoy people.
GREENWOOD:
We know that directors get multi-million dollar salaries but under current legislation, the payout when they leave can be up to seven times that annual salary so…
BOWEN:
Yeah that's correct…
GREENWOOD:
Somebody's on two million dollars, they can get fourteen million dollars. If it's beyond that, they have to then go to shareholders to get the tick of approval.
BOWEN:
That's correct – that's seven times the total remuneration and the total remuneration can take into account all the different types of payment received - so what we've done is changed that seven times to one time, just one year's salary and it's got to be the 'base salary' so not counting everything else that gets added in. They can get one year's salary as the termination 'golden handshake' – over and above that; you've got to ask the shareholder if that's okay.
GREENWOOD:
Now I've just got a bit of a laugh there because I've just seen the top of Bloomberg here today. Right, as you know Citigroup – the government has introduced similar, if you like similar caps on the bonuses that can be paid to the bankers in the United States because of their, if you like, their agreements to fund some of these banks.
The top headline on Bloomberg right now is, "Citigroup set to raise base salaries by up to 50 per cent after bonuses reduced". You'd have to imagine that that type of thing would happen in Australia as well.
BOWEN:
Well you're always – that's why we've got this Productivity Commission inquiry as well as doing this. This was a two step announcement; look this is really the most egregious, the thing that really annoys us the most and the community is these big payouts which in many cases are rightly seen as payment for failure. You leave an organization…
GREENWOOD:
Oh gee I've seen a few of those Southcorp would be one I saw for example it was a massive one AMP another one.
BOWEN:
…I don't mind paying someone who's earning and adding value to the company, it's a successful company, successful chief executive. I think everyone would agree you have to pay those people well, but it's these termination payments that really annoy people. But your central point is correct, when you deal with these sorts of things you often get companies saying well how can we get around this, and that's why we have the Productivity Commission looking at a whole suite of measurers that the Government might want to embrace and the Productivity Commission is a very well respected organization which will bring a great deal of analysis and thought to the issue.
GREENWOOD:
So are you implying that potentially the Government - if it gets the report from the Productivity Commission with certain recommendations - could try to take steps that would not just cap the payout in terms of the golden parachute but may look at ways in which it may try and limit in some way enormous salaries and the option deals and the share holding deals that many CEOs have in Australia today?
BOWEN:
Well I'm not implying that directly, what I'm saying is that we'll look at whatever the Productivity Commission recommends very seriously. I don't want to raise people's expectations that this is an easy thing for the Government to do or should do because the market works in a way that should reward effort and reward success and that's why we think this measure we've put into the Parliament today on termination pay is appropriate but we do need to continue to attract good people to Australia.
So we have to strike that balance and that's why we're going about it, we're not rushing in tomorrow, we're going about it in a measured and considered.
GREENWOOD:
So there's all sorts of issues and arguments as you'd say about trying to work out about how much a person should be paid. If they're succeeding clearly they should be rewarded but certainly this is a good thing to at least prevent some payment for failure.
Chris Bowen is the Minister for Superannuation, Financial Services and Corporate Law and that is a step in the right direction and we thank him for his time today.