Christine Milne (Tasmania, Australian Greens) Share this | Link to this | Hansard source

I move the Australian Greens amendment to this bill on sheet 5705:

(1)    Schedule 1, page 3 (after line 6), after item 1, insert:

1A  Paragraph 200F(2)(b)

Repeal the paragraph, substitute:

             (b)    the value of the benefit, when added to the value of all other payments (if any) already made or payable in connection with the person’s retirement from board or managerial offices in the company and related bodies corporate, does not exceed the amount worked out under subsection (4).

1B  Subsections 200F(3), (4) and (5)

Repeal the subsections, substitute:

        (3)    For the purposes of paragraph (2)(b), other payments includes:

             (a)    payments of the market value of shares or share-based payments that become exercisable in connection with a person’s retirement from a board or managerial office in the company or in a related body corporate; and

             (b)    payments by way of pension or lump sum, including a superannuation, retiring allowance, superannuation gratuity or similar payment.

        (4)    The amount worked out under this subsection is:

             (a)    if the period or periods during which the person held a board or managerial office in the company or in a related body corporate total less than 12 months—the amount that is in the same proportion to $1,000,000 as that total period is to 12 months; or

             (b)    if the period or periods during which the person held a board or managerial office in the company or in a related body corporate totals 12 months or more—$1,000,000.

1C  Paragraph 200G(1)(c)

Omit “subsection (2)”, substitute “subsection (3)”.

1D  Subsection 200G(1)

Omit “In applying paragraph (c), disregard any pensions or lump sums that section 200F applies to.”, substitute “In applying paragraph (c), the value of the benefit includes any pensions or lump sums that section 200F applies to.”.

1E  Subsections 200G(2) and (3)

Repeal the subsections, substitute:

        (2)    For the purposes of paragraph (1)(c), other payments includes:

             (a)    payments of the market value of shares or share-based payments that become exercisable in connection with a person’s retirement from a board or managerial office in the company or in a related body corporate; and

             (b)    payments by way of pension or lump sum, including a superannuation, retiring allowance, superannuation gratuity or similar payment.

        (3)    The payment limit is $1,000,000.

1F  Subsections 200G(5) and (6)

Repeal the subsections.

As the Senate would be aware, the Greens support the bill and certainly think that it is reasonable to legislate to make certain that a person unfit to manage a corporation in a foreign jurisdiction should equally be found to be unsuitable here. However, the Greens would like to take this opportunity with the Corporations Act to seek greater accountability for large executive termination payouts. In these times of economic turmoil, when calls for fiscal discipline and accusations of corporate negligence abound and when the public purse is being opened for the benefit of private interests, there is growing popular support for executive remunerative restraint. In fact, the Prime Minister has recognised this in his public comments on the issue, but we have seen no concrete outcomes.

The amendment the Greens are moving is very restrained and is not controversial. In fact, it places a limit on the magnitude of the golden handshake that executives might receive. It requires any handout that exceeds $1 million to be subject to the vote of shareholders—that is, it permits the owners of a company to have a say on whether they consider an executive’s performance is worth upwards of $1 million of their capital.

The amendment to the Corporations Act gives shareholders the power to restrict those termination payments. It requires shareholder approval for any termination payment, including vesting of unvested equity incentives above $1 million. Vesting is essentially a right to an asset, even if that asset is not yet in the person’s possession. Unvested equity incentive means that executives are given share options packages and they are part of termination payout deals. Those shares are committed but not exchanged during the course of employment and are realised upon termination, and that substantially increases the size of the termination payments.

The Greens amendment specifically closes this loophole, which allows for the use of unvested incentives as part of termination payments. It is needed because currently the Corporations Act does not require shareholder approval for termination payments above a threshold of seven times the total remuneration. However, the provisions are not sufficiently tight to prevent any decent lawyer finding the loophole to which I have referred. When some of the recent termination payouts are considered, this requirement is enthusiastically ignored.

According to research conducted in 2008 by governance advisory group RiskMetrics, boards of most companies surveyed flouted the law to pay departing executives extremely generous packages. For example, the survey found that the average CEO of a top Australian company received just over $3.4 million as a termination payment—or 201 per cent of the annual salary on termination. Twenty-three of the 33 CEOs surveyed received termination payments greater than $1 million. Many of these CEOs are from companies that participated in the excessive greed that has led to the financial crisis both overseas and here in Australia. They have walked away with their packages and the community is now paying. The broader community is paying. With the collapse in the share prices, the shareholders are paying. People are also paying with the collapse in the value of their superannuation.

We know that one of the largest termination payments was to Santos’s CEO, John Ellice-Flint. It was $16.8 million. He received that $16.8 million, including 2.313 million unvested options. The total package assumed that the options were vested at the time of termination. His base salary was $2,691,995. The payout turned out to be 625 per cent of his annual salary. I do not think that people in Australia are very happy with that kind of payout. Shareholders are certainly unhappy with it. Allan Moss’s termination payment from Macquarie Bank was up to $80 million. Come on! How many people are worth that? Look at Sol Trujillo’s current salary of $13.39 million. Imagine what he might get at termination. Nicholas Moore from Macquarie Bank earns $26.8 million. Look at Phil Green from Babcock and Brown. I am sure that the shareholders, given the current state of that company, would not be impressed with the $22.1 million salary and share package that he gets. And so it goes on. Looking at a payout other than the two that I have mentioned, David Murray from the CBA got $17.5 million.

This is a very sensible amendment. One of the first things that Barack Obama did as United States President was to move on these excessive corporate packages. He is about to do that. We have heard a lot from the Prime Minister, and yet nothing has happened. When the Greens moved this amendment last year it was rejected. But that was last year, when greed was okay and neoliberalism was the philosophy of choice. This year, that has changed. We are now no longer neoliberals. We believe that greed is a real problem in the market and that we need to fix it up. We are essentially giving the Senate another opportunity to vote on this now that there has been a change of position in relation to neoliberalism.

It is also clear that Obama gives the current Prime Minister some courage. Obama has broken new ground; he is moving on this. So there is a good reason for Australia to do so now that the US, the home of capitalism, is moving to recognise that there is excessive greed in these excessive termination payments. This amendment will close a loophole. It will allow shareholders a vote on this issue if payments are in excess of $1 million. It will make sure that the package is $1 million and cannot be camouflaged with options and shares and so on. It is perfectly reasonable. It is in line with community sentiment. I am sure that, now that we recognise that excessive greed has been a major driver of the current financial crisis, there will be a change of heart here in the Senate. I look forward to other senators supporting the Greens in making sure that these obscene termination payouts are stopped, that loopholes are closed and that we give shareholders the right to determine what happens to their money.

Nick Sherry (Tasmania, Australian Labor Party, Minister for Superannuation and Corporate Law) Share this | Link to this | Hansard source

In the brief time available, I want to commence my contribution on this issue. As Senator Milne has rightly pointed out, this amendment is identical to an amendment that I recall was moved on two occasions last year and which I spoke on. The first point that I want to make is on Senator Milne’s reference to the circumstances in the United States. The circumstances in the United States are quite different from the circumstances that exist in Australia. The circumstances in the US mean that we could probably dub it ‘the home of socialism’ now, I suspect, given the extent of bank bailouts, takeovers and mergers et cetera. That is one of the legacies of former President George Bush. There are other issues, but when we are discussing executive remuneration it is important to distinguish between the issues in the United States and the issues in Australia. In the US, what is known as the subprime crisis commenced with the distribution of mortgage based products that were miss-sold and in the passing of those securitised products—

Progress reported.