The Federal Treasurer yesterday announced long-awaited reforms aimed at curbing excessive “golden handshakes” — or termination payments, paid to company executives.
The new laws will require shareholder approval for any termination payment which exceeds 12 months base salary (currently, executives are able to receive a termination payment equal to seven times total remuneration without approval). The new laws will not actually restrict golden handshakes from being paid, but rather, will require approval from a majority of shareholders before the payment can be made.
While certainly an improvement, the proposed laws are not a complete solution — they do not to address the issue of CEOs receiving “termination payments” when they are not actually terminated, but rather, elect to retire. Similarly, the payment of ‘twelve months base pay’ is still far greater than what most employees would expect to receive in the event of redundancy or termination.
Despite the changes being roundly supported by Main Street, the executive classes, and their paid protectors have unsurprisingly criticized the moves. The Age today screamed, “Business Fury at Moves to Limit Payouts”, with CEO of the Australia Industry Group (and close adviser to Kevin Rudd), Heather Ridout, stating that, “Australian companies and the regulatory framework they operate under are not responsible for the current crisis … and they shouldn’t be overregulated in response to it.”
Ridout’s claims contradict recent occurrences, which have seen Oxiana’s Owen Hegarty walk away with a golden handshake of $8.35 million while the company he ran teeters on the edge of insolvency. Similarly, former Pacific Brands boss, Paul Moore, received more than $3 million after he retired last year. Neither payment required shareholder approval. Under the current laws, outgoing Telstra chief, Sol Trujillo, would be entitled to a termination payment of $77 million before shareholders approval would be required. Few, other than Ms Ridout, would describe curbing such potential excess as “overregulation”.
Long-time member of the director’s club, Dick Warburton, also attacked the proposed laws, dubbing the move “populist politics”. In fairness, Warburton knows more about golden handshakes than most. Warburton was a director at Southcorp when the wine maker paid former CEO, Tom Park, $10.1 million for a mere five months as CEO, including a $3 million severance payment. Park was effectively made redundant after Southcorp’s disastrous Rosemount acquisition.
John Colvin, CEO of the Australian Institute of Company Directors, also criticized the proposed change, telling the Financial Review that “Government’s aren’t the best people to set pay, and they’re not the best people to regulate the area.” Colvin, a former industrial relations lawyer appeared confused, given the proposed amendment to the Corporations Act does not involve the Government regulating or setting pay at all, but rather, provides shareholders with the option to reject payments which exceed a certain level.
In any event, governments would be hard pressed to do a worse job than existing company directors. It is those existing directors who paid Rupert Murdoch remuneration of $86 million over the past three years, during which time NewsCorp shares tumbled by almost 60 percent. Company directors also paid recently departed Macquarie chief, Alan Moss, more than $79 million since 2006. Over the period, Macquarie shareholders saw their investment fall by around 66 percent.
Warren Buffett put it best, when he stated in his 2005 Letter to shareholders:
Getting fired can produce a particularly bountiful payday for a CEO. Indeed, he can “earn” more in that single day, while cleaning out his desk, than an American worker earns in a lifetime of cleaning toilets. Forget the old maxim about nothing succeeding like success: Today, in the executive suite, the all too-prevalent rule is that nothing succeeds like failure.
It is this behavior which the proposed laws seek to change. The new laws simply act to give shareholders a say on golden handshakes. If a departing CEO creates enormous value for investors, like Michael Chaney at Wesfarmers or Roger Corbett at Woolworths, then shareholders are entitled to approve a generous termination payment. But when the likes of John Alexander, Owen Hegarty, Paul Anthony and Mike Tilley collect multi-million dollars payments while their company lies in ruins, governments must act to protect shareholders.
I wrote this to your editor today
To the editor
The heart and soul of your editorial statement on the 19th March makes me proud to be a subscriber but I would like to point out some ambiguity as well as comment on the theme. Please help me with this. You’re suggesting that
“The Federal Government’s rather insipid response to excessive executive remuneration” ….
“apparently has the business community incandescent with rage” because its insipid (and this community is pointing out this fault) or as the editorial say’s to me that focusing on shareholders to solve the problem is insipid because as you point out, “giving shareholders even more power when they don’t use the power they have now”, the response is pointless.
It seems to me, if the ‘business community had the smarts that they constantly claim needs excessive payment for nourishment then an insipid, pointless action that could never lead to the limitation of their excessive payments would define the government as their best friends and attacking it makes them look as stupid as the man it the street thinks they might be for getting into all this strife in the first place (oh for Ideology it can’t even cure stupidity). Or its clever to be afraid of shareholders power that adds up to nothing because its never used because they know this government has the smarts to change the myth of ‘shareholders power’ previously given in a way that is almost impossible to use and change the law to liberate it.
It took the Howard electors 12 years to recognise their mistake and get rid of him not just ‘out of government’ wise but ‘out of our face forever’ wise, bennalong wise.
Expressing your considered needs just on a voting day doesn’t even have the effective power of a baby crying when considered in a dynamic which includes the time factor.
I’ve said it before and I will say it again for Stuart.
“Ideology, it can’t even cure stupidity or anything else (not like pharmacology)”.
Not all Politian’s are ‘rats’ or don’t you know that.
The diligent hard working ones have earned the pension schemes as part of a pay incentive when their salary’s were laughably tiny.
The pathetic Politian’s are there serving their time for the pension not their constituents. This is common knowledge not ‘ideological’ knowledge.
Mind you they forget to allude to this fact when justifying salary rises but nobody reminds them either (they are actually human also).
The statutes need ….
Impeaching the PM.
Impeaching a Director or CEO.
And if we could be so lucky psychological therapy for the ‘ideology’ addict which addiction causes as much damage as any other.
‘Impeach Power’ will surely keep every kind of would be bastard honest, explaining and performing enabling the discovery ‘the man in the street is not stupid’ and knows how to look after his needs, which is the flattery afforded the ‘common man’ after every whatever vote. (goverment or company general meeting)
It would also stop boards electing token would be bastards to their ranks to avoid trouble.
My major concern with excessive remuneration is not with private sector but public sector and more so half pregnant QUANGOS that tend to avoid public and media scrutiny, while having benefit of state sector tenure etc. but wanting all the advantages of freelance contractors e.g. AWB, Universites/TAFE to name just two. In case of universities the salary multiple between a VC and lower level administrator would vary between 15 and 50……or university managers becoming directors of related commercial enterprises etc. etc. However, they do not appear to be subject to any responsibility or accountability?
If we don’t listen to people like john arbouw then we deserve it all.
The other winner john is the recipient.
This madness is only made potentially palatable if our political masters do similarly and drop their rip-off life-long pension scheme that kicks in after on a few token years of work. I did 12 years of full time employment before redundancy and did a successful career change in the late 90’s; what a difference life would be if a lifelong pension at large proportion of prior pay would be available to everybody. If the rats cannot clean up their own nest, then leave everyone else alone. This is but part the usual and typical ongoing Labor/ACTU/Union ploy to kill off incentive and progressively dumb down the community.