Termination payments – more complexity and confusion!
01/03/2013
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As with the government’s proposals to require disclosure of ‘past, present and future’ pay, the proposed new requirements for disclosure of termination payments are much more likely to confuse than clarify the issue.  Again, extra disclosures are to be required, apparently without modifying or removing the current rules.

Sensibly, the circumstances in which a benefit is to be regarded as a termination benefit are to be the same as specified in s200A in relation to the approval of termination payments.  That is, the benefit will be caught if it is given by way of compensation for, or otherwise in connection with, the loss of a relevant office or position, or in connection with retirement from the office or position.  This is as it should be, but note that it will not extend to post employment consultancy arrangements that are not established as part of the termination settlement (and which properly should not be the subject of disclosure).

Unfortunately, it is all downhill from there! The explanatory memorandum notes the existing requirements to disclose termination payments provided for under a contract of employment (s300A(1)(e)(vii)) and the additional requirement to disclose termination benefits (Regulation 2M3.03(1), Item 9).  However, it then asserts that

“…questions arise as to the adequacy of the coverage of these disclosure requirements.  The legislation currently does not cover non-contractual payments on termination.  This may include a discretionary payment, gratuitous (sic) bonus or a settlement payment in relation to a dispute over the person’s termination.  It also does not cover an arrangement where a departing director or executive provides consultancy services post termination.”

While more prescriptive, the proposed new disclosure of termination payments is no broader than the existing Item 9.  Both require disclosure of any benefits provided as the result of a termination. They will not, and should not, capture any benefits or arrangements made other than in relation to the termination.  We are not sure why the government thinks Item 9 does not cover such payments (including post termination consultancies to the extent they are a part of the termination settlement/arrangement).

Strictly speaking, all KMP are employed under a contract, the terms of which have been agreed between the parties, either through execution of a written agreement or via acceptance of the arrangements under which the employment is proceeding.  Nevertheless, more certain disclosure may be encouraged if the references to a contract are removed, so the obligation is simply to disclose the specified information, including any termination payments that have been agreed between the parties (including the elements of the payment where the value is not known).

Interestingly, the explanatory memorandum fails to acknowledge Reg 2M3.03(1), Item 7, which requires disclosure of post employment benefits, divided at least into the following components: (a) pension and superannuation benefits, and (b) other post-employment benefits.

Item 7 is not limited in any way, so would cover any post-employment benefits provided as a consequence of the employment relationship.  There is no reason why this would not include any post-termination consulting or other arrangements established as part of a termination settlement.

Quite appropriately, neither Item 7 nor any attempt to include post termination consulting arrangements in disclosures will capture genuine consulting arrangements entered into after the employment relationship has ended. 

The result is that the proposed amendments are presented without due regard to the existing provisions, and will result in duplication and confusion if they are enacted as proposed.

This suggests that if disclosure of termination benefits has been regarded as inadequate, the solution is more a matter of enforcement of the existing legislative and regulatory provisions rather than the addition of more requirements on top of the existing regime. As a minimum, if the proposed new provisions are to be introduced, the existing provisions should be amended or deleted, as required, to avoid duplication and confusion. Hands up for deletion!

The closing date for submissions on the consultation on the government’s proposed amendments to the disclosure of termination payments is 15 March 2013 – see HERE.

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