The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen MP, today introduced into the Parliament the Corporations Amendment (Improving Accountability on Termination Payments) Bill 2009.
The Bill improves and strengthens the existing regulatory framework relating to the payment of termination benefits to company directors and executives.
"Under laws left by the previous government, termination payments could reach up to seven times a director's total annual remuneration package before shareholder approval was required," Mr Bowen said.
"The new regulatory framework will ensure that termination benefits for company directors and executives exceeding one year's average base salary are subject to shareholder approval.
"This legislation will better empower shareholders and improve the accountability of company management in setting remuneration.
"The changes will also give clarity and guidance to businesses in promoting responsible remuneration practices."
Other key features of the legislative package include:
- The scope of the requirements relating to termination benefits is expanded to include senior executives or key management personnel of a disclosing entity.
- The definition of what constitutes a "benefit" is broadened, including a requirement for a broad interpretation of the term "benefit" and a requirement that the substance should prevail over its legal form.
- New regulation-making powers to specify what types of payments are, or are not, a termination benefit, and to define 'base salary'. Further targeted consultation will be undertaken on these regulations.
- The immediate repayment of unauthorised termination benefits with an increase in the penalty provisions.
- The retention of the existing requirement for the giving of the benefit to be approved by a resolution passed at a general meeting.
The introduction of the legislation follows the release of an exposure draft for public consultation in June 2009, including meetings with business and stakeholder groups.
Following the consultation process, the Government has decided to retain the existing requirement for the giving of the benefit to be approved by a resolution passed at a general meeting. Retaining the current approval process maintains the primary objective of the reforms, which is to provide shareholders with a greater ability to reject excessive termination benefits paid to company directors and executives.
The Rudd Government has also tasked the Productivity Commission (PC) to undertake an inquiry into the broader issue of executive remuneration. A report is due out on 19 December 2009.
24 June 2009
Attachment: Corporations Amendment (Improving Accountability on Termination Payments) Bill 2009 - Second Reading Speech (PDF 24 KB)