SUBJECTS: Productivity Commission Report into Executive Remuneration, Government response, community response, Opposition policy, Hockey small business tax thought bubble.
CHRIS BOWEN:
Well, this morning the Government is releasing the Productivity Commission's Report into Executive Pay, which was received by us a few days before Christmas. The Government referred this issue to the Productivity Commission because it wanted it considered in a thorough and well considered manner. And that's what the Productivity Commission has done. This Report follows consultation around the country, a range of hearings, consultation both before and after the Draft Report released last year.
The Report makes 17 recommendations to the Government, to the Australian Securities Exchange and to ASIC. For the Government's part, we'll be considering those recommendations and it's our intention to respond in the first quarter of this year. The Productivity Commission finds that while Australia's corporate governance is good by world standards, that some pay practices have led to poor corporate performance and led to a reduction in community confidence in the corporate sector.
The public rightly expects Governments to ensure that there are appropriate accountability and transparency in relation to executive pay, and this Report provides the Government with a good basis for the next round of reforms, building on the reforms that we've already undertaken – the reforms to executive termination pay and our work with APRA through the G20 in relation to executive pay in the financial sector, for example. So we'll be considering this Report, taking its recommendations very seriously, and responding in the not too distant future formally.
Before I go to questions, I might just also make a few remarks about Mr Hockey's statements in The Australian this morning. This is the latest of a long line of thought bubbles from Mr Hockey. A thought bubble now about reducing tax for small business. Now, economic credibility relies on a lot more than thought bubbles. If the Opposition and Mr Hockey and Mr Abbott want to be taken seriously, they need to sit down and develop their policies in a considered and thought through manner. And more thought bubbles from Mr Hockey are not the way to deal with economic credibility.
More than happy to take some questions.
JOURNALIST:
The Government obviously commissioned this Report at the height of the financial crisis when the public was most concerned about how much executives were being paid. Now that the financial crisis is over, the Report ignores salary caps altogether, doesn't it?
BOWEN:
The Report rejects salary caps as being unworkable and the Report finds that salary caps would be a very blunt instrument and rather, what we need is a method of concentrating the minds of directors on the concerns of shareholders that executive remuneration has been too high. The Productivity Commission's come up with some interesting and innovative ways of doing that, and they're recommendations that the Government's taking very seriously indeed.
JOURNALIST:
It waters down the so-called 'two strikes and you're out' policy. What's your take on that?
BOWEN:
Well, the principle of the two strikes policy remains. The Productivity Commission's made a recommendation as to how it might be more workable, more workably implemented in relation to a vote through an Annual General Meeting or an Extraordinary General Meeting. I think the intent of the recommendation is to concentrate the minds, focus the minds of directors on executive remuneration and I think it will certainly do that.
JOURNALIST:
Is it a much softer approach, though, than the Prime Minister promised back in 2008?
BOWEN:
No. The Prime Minister said we would refer this matter to the Productivity Commission. The Prime Minister said that he would commission APRA to do work in relation to the financial services sector and that we would crack down on excessive termination pay. That's exactly what we've done. We've kept to the letter and spirit of all the Prime Minister's statements.
JOURNALIST:
The Prime Minister said that the payments that executives in this country were getting were obscene. The Report doesn't really address that, does it?
BOWEN:
I don't think the Prime Minister did say that. What the Prime Minister said was that he had seen some examples internationally of excessive termination pay, excessive pay more generally and that he wanted a well considered and thought through response to that, and that's exactly what we're delivering.
JOURNALIST:
Do you think in Australia there is excessive salaries?
BOWEN:
I think there have been some instances of poor salary practices, excessive termination pay in particular. In some instances it's hard to see the relationship between good corporate performance and salaries. In some instances, corporate performance has been very poor and salaries have been very high.
JOURNALIST:
So this essentially demonstrates, though, that there's not really that much that the Government can do to stop it.
BOWEN:
Well, I think the role of Government is to ensure that corporations law ensures transparency and accountability; that there are the appropriate checks and balances; that conflicts of interest in setting remuneration are minimised or eliminated, and this Report is a good basis for doing so.
JOURNALIST:
So what exactly is it that the Government has to do about corporate governance?
BOWEN:
Well, we are taking on board these recommendations and we'll be responding in the first quarter of this year. And I would be planning to introduce legislation to implement those recommendations accepted during the year.
JOURNALIST:
If the so-called 'three strikes and you're out' recommendation is adopted, do you think it will lead to lower salaries?
BOWEN:
I think the recommendation of the Productivity Commission would lead to a greater emphasis at the board level on bearing in mind the very strong views of shareholders that some instances of executive pay have been too high. There have been some companies, some boards, who have already done that. But there have been some, frankly, who have ignored their shareholders and ignored stakeholders, and I think you'd find a lot more attention from boards to those concerns.
JOURNALIST:
I know it's early days, but do you have an idea of how much of this your Government will legislate? Is it all of it, part of it, is it picking and choosing?
BOWEN:
Well look, I'm not in a position to rule in or out any particular recommendation, as you would appreciate. We received this Report a couple of days before Christmas, we'd need to take the advice of the Treasury and the Tax Office on some matters and we'd need to consider it carefully. However, we're not going to muck around over a period of months and months. I think there's been a lot of consultation on this and we can respond in the not too distant future in a substantive way. But I'm not in a position today to say we'll accept all of it or which parts we'll accept.
JOURNALIST:
The ACTU says it certainly doesn't go far enough. What's your response to that?
BOWEN:
Well, there'll be some in the community, including the ACTU, who say this doesn't go far enough. There'll be others, particularly in the business community, who say it goes too far. Many in the business community have already said that. I accept that. I accept that there will be a range of views. Some people will say too much, some people will say not enough. Our job's to get the balance right. The community expects Government to ensure transparency and accountability in relation to executive pay, rightly. The business community rightly expects the Government to ensure that we don't have regulatory overreach, that we don't have unintended consequences. That's the balance we have to strike.
JOURNALIST:
Can the Government really control corporate salaries, though?
BOWEN:
Well, I think the Productivity Commission underlines the fact that corporate salaries are best determined by boards and shareholders who are engaged in the issue will keep ensuring that executive pay is appropriate, and that means having consideration for all the factors including community concerns. It's not the role of Government, not the role of Ministers, to sit around setting salaries. Our role is to ensure that corporate law ensures appropriate accountability and transparency in that process.
JOURNALIST:
The Prime Minister and the Treasurer, at the height of the financial crisis, really seemed to make people think that they were going to do something about cracking down on these huge salaries. Nine months later when people aren't as concerned, it doesn't seem like the Government can actually do anything.
BOWEN:
The reason we referred this to the Productivity Commission is because we have always been of the view that you need to ensure international competitiveness at the same time as ensuring community concerns are taken on board. Now, for example, the Productivity Commission has found that the Opposition's policy of a binding shareholder vote on pay would be unworkable, and the Opposition should now consider that and take that on board. And they've also found that a salary cap would be unworkable and would be counterproductive.
It was always the Government's approach that a nuanced and considered approach needs to be taken on this, and that is why we said upfront we would be referring this to the Productivity Commission for a thorough and considered analysis, and that is what we've done. And as I say, we have followed the letter and the spirit of the Government's pronouncements last year and the year before.
JOURNALIST:
You talk about a timeframe. What kind of timeframe are we talking about?
BOWEN:
Well, it certainly would be my intention to have a Government response in the first quarter of this year, and to legislate during the year.