Today Treasurer, Wayne Swan, and Minister for Superannuation and Corporate Law, Senator Nick Sherry, announced reforms aimed at curbing excessive "golden handshakes" - or termination payments - paid to company executives.
Under laws left by the previous government, termination payments can reach up to seven times a director's total annual remuneration package before shareholder approval is required.
The community has been rightly offended by the excessive golden handshakes in firms where directors and executives are rewarded for poor company performance.
The Government's reforms will empower shareholders to more easily reject such payments where they are not in the interests of the company, the shareholders or the community.
The Rudd Government will amend the Corporations Act to significantly lower the threshold at which termination payments must be approved by shareholders from the current level down to one year's average base salary.
Currently a director with seven years' service and an annual average remuneration package over the last three years of $2 million a year would be entitled to receive a termination payment of up to $14 million without seeking shareholder approval. However under the Government's reform, approval will now be required for any termination payment exceeding one year's base salary.
The Government will also legislate to extend the range of executives whose termination payments can be subject to shareholder approval.
Currently only directors' termination payments must be approved, however the Government will legislate to expand the coverage of shareholder approval to cover all those executives named in the company's remuneration report.
Finally the Government will also broaden the definition of "termination benefit" to catch all types of payment and rewards given at termination.
The Rudd Government recognises that changes to the law cannot apply retrospectively. Today's announcement will not prevent existing contracts on termination payments from proceeding.
The Government has also today referred the broader issue of executive remuneration to the Productivity Commission, which will provide a final report within nine months.
18 March, 2009