Kirsten Livermore (Capricornia, Australian Labor Party) Share this | Link to this | Hansard source

My question is to the Treasurer. Will the Treasurer outline for the House the steps taken by the government today in relation to golden handshakes and executive pay?

Wayne Swan (Lilley, Australian Labor Party, Treasurer) Share this | Link to this | Hansard source

I thank the member for Capricornia for her question. It is a very important question and one that many Australians are deeply concerned about. Today the government announced two new initiatives on the issue of executive pay. All honourable members in this House will be aware of the deep community concern and anger over this issue, particularly when some of these payments are received by people who are giving redundancies to large numbers of working Australians.

The Rudd government is determined to do all that can be done to get business leaders to heed the community’s message on this issue. We are certainly very determined to do that. Today I announced two important down payments in this area. The first one will curb golden handshakes in the form of termination payments paid to executives in Australia. Laws left to this government by those opposite allow termination payments for directors to reach up to seven times their annual pay before any approval process is required. The community is deeply offended by some of these golden parachutes, so the government will amend the Corporations Act to significantly lower that threshold, and this means termination payments will require shareholder approval if they exceed one year’s average base salary for directors.

Secondly, we will also legislate to extend the coverage as to which termination payments are to be subjected to shareholder approval. Currently only directors’ termination payments must be approved. We will legislate to expand the coverage of shareholder approval to cover executives named in the executive pay report—in most cases, the five highest paid executives. We will also broaden the definition of ‘termination benefit’ to catch all types of payment and rewards given at termination. Finally, we have asked the Productivity Commission to examine the broader issue of executive pay. Today the government announced that we have appointed Professor Allan Fels as an associate commissioner to assist the Chair of the Productivity Commission, Gary Banks, with this process.

Golden handshakes, particularly where a company has not performed or where workers are being retrenched, are simply a means of rewarding failure and are absolutely unacceptable. So today we are sending a very clear message to corporate Australia: your actions are under scrutiny and the community does expect better because, as we go through this challenge of the global recession, we are going to require all the reserves of unity that we can muster as a nation. We need executives and workers working together, but to get that trust there has to be basic fairness and decency in the arrangements that apply to the workforce as well as to those who employ them.

So it is the case that we must do better here. We must do a lot better. It is not just a question of the individuals involved; it is a question of the community having trust in all of its vital institutions, including its successful business enterprises, and that is why reform is required in this area—because, frankly, the largesse of the last decade has been a slap in the face to many working people who, in a system of enterprise bargaining, understand that they do need to increase productivity to get a wage rise. That has been central to the mantra on this side of politics for many years, but workers want to know why the same principles do not necessarily apply to the people who employ them. That is why this is such an important measure. It requires reform. It requires better corporate governance. It does require incentives in the system which reflect the capacity for work and the contribution that people make.

Of course, in the last decade or so, for many people the gap has just widened and it has got out of whack. It is a complex issue, and that is why we have decided to have a Productivity Commission inquiry and look at all of the issues involved. Further measures will come following that inquiry. It is very serious, but it also goes to the heart of unity in this country and how we can work together to make our economy stronger and not be divided because of these obscene payments that are being taken by a few.