5 May 2009

Government Releases Termination Benefits Reform Bill

Senator Nick Sherry, Minister for Superannuation and Corporate Law, has today released the Corporations Amendment (Improving Accountability on Termination Payments) Bill 2009, which will deliver on the Rudd Government's commitment to address community concerns over executive "golden handshakes".

"There is significant and ongoing community concerns about excessive pay, especially "golden handshakes" and particularly at a time when many Australian families are being hit by the global recession."

"In line with our commitment, the Rudd Government is going to legislate to address the issue of rampant golden handshakes – or termination payments – paid to company executives, frequently where the company has gone backwards," said Minister Sherry.

On 18 March 2009, the Rudd Government announced reforms aimed at curbing excessive termination payments. The Bill will implement each of these commitments by:

  • significantly lowering the threshold at which shareholder approval is required for a termination payment from seven times an annual remuneration package to one times average annual base pay;
  • expanding the number of company officers for which approval is required;
  • broadening the definition of what constitutes such a "benefit" to close any loopholes, including a new Regulation-making power to deem new forms of payment that seek to avoid the law as a termination benefit; and
  • not altering contractual arrangements entered into before the Bill becoming law, including defined benefit superannuation arrangements, and excluding statutory superannuation payments from the calculation of "benefits".

In addition, the Bill proposes:

  • significantly higher penalties, with potential fines for individuals now set at $19,800, up from $2,750, and for corporations now set at $99,000, up from $16,500; and
  • a mechanism for shareholders to assess golden handshakes in the context of the recipient's actual performance by requiring shareholder votes on termination benefits to take place at a future annual general meeting following an executive's departure and a ban on the calling of extraordinary general meetings that are only to undertake such an approval vote.

The Rudd Government has also asked the Productivity Commission (PC) to undertake an inquiry into executive remuneration. The PC inquiry will take the new laws into account as part of its inquiry into Australia's executive remuneration framework.

The Bill, which will be introduced into Parliament during the Winter sittings, will be open for public consultation for a four-week exposure period ending on 2 June, 2009. The Bill and draft commentary are available at www.treasury.gov.au.