Guerdon Associates was invited by Treasury to comment on the revised draft Corporations Amendment (Improving Accountability on Termination Payments) Bill 2009.
Our comments were submitted on 5 August and were to be read in conjunction with our original submission on 1 June 2009 on the initially proposed amendments to the Corporations Act termination payments provisions, and also with our submission to the Senate Standing Committee on Economics on 13 July 2009. Afterwards we were invited to appear (on August 25) before the Senate Economics Legislation Committee, who sought our views on the draft legislation, and executive pay generally.
We commented on:
- Meaning of base salary (Regulation 2D.2.01)
- Meaning of benefit (Regulation 2D.2.02)
- When benefit given in connection with retirement (Regulation 2D.2.03)
Our submission can be viewed HERE.
Following our submission we were invited to appear before the Senate Economics Legislation Committee inquiry. Questions focussed on levels of fixed remuneration and whether there was risk of an unintended consequence of increases in pay as a result of the 12 months base salary limit. While acknowledging that the current termination payment limit of seven times total annual remuneration is out of step with international standards, we hold the view that the reduction proposed is too extreme. One of our concerns was the problem the legislation created in negotiating remuneration arrangements for migrant executives used to more generous provisions in their home countries.
We also hold concerns that the low maximum payment may lead to increases in base salary or sign-on payments. We expressed the view that a more effective approach would be to utilise existing governance frameworks, such as setting a limit at three times base salary plus bonus, but with an ASX Corporate Governance Council principle of one times base salary plus bonus with an “if not, why not” explanation required for amounts above that figure.
We also pointed out a number of items that will present difficulties in practical application. Those items were identified in our submission to Treasury on the revised draft legislation and hopefully will be addressed in the final legislation, the timing of which, in our view, should await the outcome of the Productivity Commission report.
A transcript of the public hearing proceedings has yet to be published, but is sure to be interesting.© Guerdon Associates 2022 Back to all articles