Nick Xenophon (SA, Independent) Share this | Hansard source

As a nation Australia has long prided itself on our egalitarian attitude. We believe in equality of opportunity and we believe in fairness right across the board. But most Australians would argue that we have not seen that fairness when it comes to the remuneration of executives in this country. Between 1971 and 2008 the growth in executive salaries was a staggering 470 per cent. Put simply, the rich have been getting richer. Compare that with the situation faced by average workers who prop up the businesses these executives so handsomely profit from. Between 1971 and 2008 the average worker has experienced an increase in real wages of 54 per cent. So executive salaries have gone up nine times more than the wages of workers in real terms.

Some would argue that the CEOs, as the senior executives of our top 100 companies, are worth the multimillion dollar contracts they have been paid. Others might argue that they are not. The Corporations Amendment (Improving Accountability on Termination Payments) Bill 2009 is not really about how much a CEO should or should not be paid. It is about giving shareholders some say over how much a CEO is paid when they leave.

If the average Joe or Joanne retires from his or her full-time job as, say, an accountant in Adelaide, they are likely to leave with their annual leave paid out as a lump sum, some super and a farewell party. If Mr or Mrs Smith resigns to take up a position elsewhere, they will probably be paid out their one month’s notice and their annual leave as a lump sum, and the farewell party would be negotiable. But, if Mr or Mrs Smith is sacked due to poor performance, because he or she did not meet his or her key performance indicators or because their work resulted in the business losing money, they would probably be asked to stop work immediately and would be paid out their one month’s notice and annual leave—no reference, no party and no bonus.

Compare this with the extraordinarily generous treatment routinely given out to Australia’s CEOs. The average CEO of a top 100 company in Australia who resigns, retires or is sacked receives a termination payment of around $3.4 million, which is the equivalent of twice their annual salary. If that is not enough, under the current legislation executives are eligible to receive termination payments of up to seven years total remuneration without the need for shareholder approval. That means that a person with seven years service and an average annual salary over the last three years of $10 million would be entitled to receive a termination payment of up to $70 million without seeking shareholder approval. What is even more outrageous than that figure is that more often than not the reason for termination is poor performance. So it is a case of: ‘If you mess up and cost the shareholders a fortune, we will pay you out a fortune as we show you out the door.’ That seems to be the approach in many cases. It is just extraordinary and it is not acceptable.

In 2002 five senior executives of AMP departed with close to $12 million between them, despite the fact that when they were in office, holding positions as senior executives, AMP lost more than $13 billion of its market value. In 2003 the CEO of Southcorp was farewelled with a golden handshake of $4.4 million even though while he was at the helm Southcorp shares lost 40 per cent of their value. In fact, a study by corporate governance analysts RiskMetrics found that one-third of the nation’s top 100 companies in the past three years paid their chief executives a combined $112 million to go away. It seems unfathomable that, while the average Australian may be sacked without so much as a farewell party, an executive is being farewelled not just with a bottle of Dom Perignon but with an unearned outrageous fortune.

I commend the government on introducing this bill, which will reduce the number and size of golden handshakes and will instil a bit more faith in the Australian public and Australian shareholders about our corporate CEOs. This bill will hold to account executives, who for too long have been handed multimillion dollar farewell cheques—cheques that many shareholders would agree they did not deserve. But I have some concerns that this bill will not match its intent. The Productivity Commission is due to release its findings into executive remuneration in December this year. It will address not only termination payments for executives but also pay arrangements and greater powers for shareholders. According to media reports it will call for the votes of shareholders with regard to remuneration to be binding. This is a measure that I fully support

Given this, as well as a number of other concerns I have, I will move a number of amendments during the committee stage that will seek to ensure greater transparency and greater accountability when it comes to termination payments. These include an amendment that requires that shareholders be advised of the reason for the executive’s departure—whether it is resignation, retirement or termination—and an explanation. Too often shareholders are told that the executive is retiring only to be told in the board remuneration report that they were terminated with a multimillion dollar bonus. With all due respect it just shows you how smart some corporations can be when it comes to keeping embarrassing information from shareholders. I have real concerns that removing these golden handshakes will only result in a surge of golden hellos. As such, I will be moving an amendment that will require approval from shareholders for sign-on and performance benefits that exceed the one year’s base salary threshold. We cannot allow one rort but leave the way open for another.

This bill is a positive step to ensuring greater accountability, as the termination payment threshold is set to drop from seven times total remuneration to one year’s base salary. However, as many of these agreements will be finalised during the sign-on stage, well before the possibility of termination is discussed, I believe it is crucial that shareholders have a say in the sign-on and performance bonuses to ensure that they are not beyond expectations. Further to this, I will be calling for shareholders to be able to vote on the maximum money value an executive can receive as a termination payment where it exceeds one year’s salary. Shareholders invest their savings in a company in the hope that they can support and profit from the company. There are many hundreds of thousands of Australians who rely for a comfortable retirement on the dividends from these shares and on the capital value of these shares. They do not want to watch their investment fall while the CEO, after three years of service, leaves with a multimillion dollar pay packet.

Finally, as the Productivity Commission is set to release its final report into executive remuneration, I call on the chamber to support the insertion of a creative sunset clause into this bill—it is not an ordinary sunset clause, but I would like to think that senators will see this as a positive way forward—whereby certain exceptions under this proposed legislation cease two years after the date of assent, which would enable parliament to revisit this legislation. In other words, if nothing is done it would give greater power to shareholders in terms of executive remuneration. It would act as a powerful incentive for the legislation to be revisited in a positive way to strengthen safeguards for shareholders, particularly after ASIC and the Productivity Commission hand down their findings.

This bill is a good step towards holding corporate executives more accountable and forcing them to justify a multimillion dollar payout when the average Australian is finding it difficult to make ends meet. I support the purpose of the bill and, when we look to move amendments during the committee stage on this long-overdue piece of legislation, I hope to have the support of this chamber to close loopholes in the legislation and to improve it for the benefit of shareholders and the Australian public alike.