SUBJECTS: Executive Remuneration, termination payments, Australia as a financial services hub
MADONNA KING:
Shareholders are on track to reject big payouts to company directors but how would they do that and what kind of remuneration packages might it lead to?
Chris Bowen is the Federal Minister for Financial Services, good morning Minister.
CHRIS BOWEN:
Good morning Madonna, good to be with you.
KING:
What is being considered here?
BOWEN:
Well we've introduced a law into Parliament which would restrict the ability of companies to provide big payouts to former directors. This has been something of community concern. A lot of people I talk to say, "look we recognise the need to pay our executives well but what we really get annoyed about are big payouts when executives leave companies and sometimes in circumstances when the company's not doing well at all".
So what we're doing is restricting the amount that can be paid without shareholder approval. At the moment a company can pay a former executive up to seven times their total remuneration without getting shareholder approval. We're reducing that to one year's base salary – that can be paid to a parting executive….
KING:
And it would be up to shareholders?
BOWEN:
If the company feels it's justified to pay more, that's fine. They've just got to convince their shareholders.
KING:
And how far will this panel stretch. Will they be able to approve how retirement benefits are calculated, beyond the golden handshake?
BOWEN:
No, the regulations that I issued yesterday provide some of the details around this. What we don't want to do is restrict genuine departure payments, so genuine leave being paid out, superannuation payments, accrued entitlements – that's quite separate. So that really just targets what we're really trying to get to here which are the big golden handshakes. Many people, myself included, think they're difficult to justify sometimes. If they can be justified, by all means, justify them to the shareholders.
KING:
So, the shareholders will vote if the proposal is to provide a payout bigger than one year's pay?
BOWEN:
That's correct, one year's base salary.
KING:
But will this lead to lower remuneration long term so company chiefs will do nothing for that, or is it just aimed at smaller golden handshakes?
BOWEN:
Yes, this is just aimed at golden handshakes. We of course have a Productivity Commission inquiry looking at the broader picture of executive remuneration and we do have to strike an important balance here, we need to be able to pay appropriate rates to senior managers to attract people to Australia to work here, but we also need to make sure that we get that balance right. So that's why got the Productivity Commission having a very thorough look at the whole issue of executive remuneration but we were worried about this particular instance of golden handshakes which are very difficult to justify, so we've brought this part forward.
KING:
You say we've got to get the balance right. We live in a global village and one of the rationales often given for big, over-the-top remuneration is if you don't get that pay in Australia you certainly will get it in America. What's your view on that?
BOWEN:
Well look as I say Madonna, you've got to strike this balance, I don't think that we need to pay over the odds compared to what the rest of the world pays and I often argue…
KING:
Are we doing that, paying more?
BOWEN:
No, I don't think we are and I also argue as Minister for Financial Services, I'm promoting Australia's financial services hub in Asia for example and some people argue that we should cut tax rates to attract more people to come and work in Australia and pay more and I can point out there's an equation here, we're also talking about quality of life and you know, if you want to live in Australia, as many, many people do, we have a great quality of life but also, that needs to be paid for through the tax system.
So it's not just as simple as money, people weigh up where they want to live and where they want to work and I think Australia has the ability to attract people from places like Hong Kong and Singapore, based on quality of life as well.
KING:
When will these new laws relating to providing shareholders with the ability to determine golden handshakes, when will that come on line?
BOWEN:
Well, I've introduced it into the House of Representatives, I'm hopeful that it will come on for debate next week and we'll see where the Opposition stands on this and then it will need to go through the Senate and often as you know in the Senate we're in the laps of the Senators as to how quickly then can pass it.
KING:
Chris Bowen, thank you
BOWEN:
Always a pleasure, Madonna.