SUBJECTS: Executive remuneration, termination payments
BRENT BULTITUDE:
The Financial Services, Superannuation and Corporate Law Minister Chris Bowen said these reforms would empower shareholders to reject excessive termination payments and promote responsible remuneration practices. We have the Minister on the phone this afternoon, Minister hope you’re well?
CHRIS BOWEN:
Yes I am, good to be with you.
BULTITUDE:
Likewise. So could you explain exactly what’s going to happen, in layman’s terms?
BOWEN:
Look the current situation is that when an executive leaves a company, the company can pay that executive a golden handshake, at up to seven times their total annual salary.
BULTITUDE:
So if they’re on a million dollars a year, under the old scheme, they could walk away with $7 million as a bonus payment?
BOWEN:
That’s correct - $7 million as a bonus payment. We think that’s too high. Look, you do need to pay your executives an appropriate level for the work they do, and to attract an appropriate level of executive to Australia – that’s true – but by the same token, where a company has been in difficulty and the executive leaves, we don’t think there’s much justification for these very high payments.
Certainly, if a company feels that there is that justification than they should be able to convince their shareholders and that’s what this change in the law does. It means that a company must convince its shareholders that such a payment is warranted.
BULTITUDE:
And I suppose the people that are probably the angriest, when these CEOs get these huge payouts in the past are actually the shareholders – are they not?
BOWEN:
Well that’s correct. In many senses, the most to lose are the owners of the company, it’s their money. So we think there’s a balance to be struck here. Yes, farewell payments, termination pay is fine but it’s really got to be within community standards and we think one year of base salary – so at the moment its seven years of total remuneration, the total package – we see 12 months at of base salary is an appropriate level to pay executives when they leave. Over and above that, you’ve got to ask your shareholders if it’s okay.
BULTITUDE:
Are there any loopholes in this that they can get through?
BOWEN:
We’ve been pretty careful in the way that we’ve framed it. I issued the regulations yesterday and what we don’t want to do is include things like accrued holidays, superannuation et cetera because they’re entitlements that have been built up. This is about the golden handshakes so we’ve been pretty careful in the way that we’ve framed it and once it’s law, it passes the parliament, which I’m hopeful that it will, then we continue to monitor its operation and make sure it’s working as intended.
BULTITUDE:
When will that happen Chris?
BOWEN:
Well I’ve introduced it into the House of Representatives, I’m hoping it comes up for debate in the house next week; if it passes the house, which it will because the Government supports it, then it goes off to the Senate; and the Senate is a more tricky chamber to get things through and it can take longer but I’ll certainly be keen to get it through this year.
BULTITUDE:
Because gee, I’ll tell you what over the last two years, in particular there’s been some golden handshakes. I’m thinking of the gentleman from Telstra at the moment.
BOWEN:
Yeah well look they’re the sort of examples which really do make people cranky and I think with some justification. As I say, I’m not into saying that executives should be lowly paid, on the contrary they should be appropriately paid but it’s really hard to see the value for companies or for the nation for big payouts for people who are leaving the company in difficult circumstances
BULTITUDE:
Chris will you consider taking it one step further and mandating how much these CEOs earn in a year?
BOWEN:
We’ve got a Productivity Commission review going on at the moment into that broader question. We said look there are some real issues to be answered here in terms of the broader executive remuneration, we thought this issue of golden handshakes was frankly, obvious enough and simple enough that we could move on it straight away with these bigger issues about the type of remuneration, we’ve got the productivity commission having a good look at it, they’ll be reporting in the next few months and then we’ll take it from there and we’ll have a discussion with the community about what’s appropriate arising out of the Productivity Commission’s recommendations. I do have to say I don’t think we’ll be going down the road or setting exact limits and telling companies how to do their job in terms of how much they can pay but what we do need to do is set the right balance when it comes to Government regulation in the overall scheme of things.
BULTITUDE:
Does the legislation include any clauses in reference to if they haven’t done the job appropriately, in other words if they haven’t achieved the goals they were set thereby they don’t get the payment?
BOWEN:
Well no, that’s up to the company and it’s up to the shareholders. What we want to do is empower shareholders to have more of a say and in the particular instance we are talking about here, executive golden handshakes, there are examples overseas and I know it happens in the United States and the United Kingdom looking at it more, if the companies not performing well then they should have the opportunity to get bonuses back from the executives who have received them. Look the Productivity Commission is having a look at this; we do have to strike the balance here Brett, we want executives to work in Australia, we want good executives who perform well, employ lots of people and have profitable companies. What we don’t want is paying excessive remuneration which in some cases could be argued rewards failure.
BULTITUDE:
Okay, you’re heading in the right direction, we thank you for your time this afternoon.
BOWEN:
Great pleasure Brett.