29/05/2009

Are company executives paid too much? Hot on the heels of public outrage at termination payments being paid to executives at a time when their companies were performing so badly the Minister for Superannuation and Corporate Law has released an Exposure Draft Bill which is designed to improve the accountability of termination payments by companies to their directors and senior executives. 

The draft Bill has largely been produced in response to public dissatisfaction during the current economic times where some senior executive’s termination payments have borne no relationship to the current economic climate or the company’s current performance. 

The key element of the draft Bill is that the threshold for termination payments which require shareholder approval will drop from being seven times the annual total remuneration package of the executive down to payments exceeding one year’s base salary. 

• The new laws will cover termination payments to directors of public and proprietary companies and extend for disclosing entities (which include publicly listed companies) to persons who hold a “managerial or executive office” where those executives details were included in the directors’ report for the previous financial year.
• The definition of a termination payment will be expanded to include a payment or other valuable consideration and legal or equitable interest in real or personal property amongst other benefits.
• Termination payments exceeding one year’s base salary will be subject to shareholder approval.
• The shareholder general meeting must be held after the person has departed to ensure the shareholders are better informed.
• The shareholder meeting must not be called for the sole or dominant purpose of passing the resolution.
• Any unauthorised termination payment must be repaid immediately.
• The penalty against an individual and a company for breaching the provisions is a fine of $19,800 or $99,000 respectively and/or 6 months jail.
  

 Another important note is that the new laws will not apply to existing contracts that have already been settled.

The annual base salary that is used for the calculation will be the average annual base salary for the person for a period up to 3 years prior to the termination to close off a loophole where the person who is being terminated may not have held that position immediately prior to the termination. 

We will keep you informed of the developments of this draft Bill as it is debated through Parliament.

If you have any questions please contact Townsends Business & Corporate Lawyers on
8296 6222.