Nick Sherry (Tasmania, Australian Labor Party, Assistant Treasurer) Share this | Hansard source

I thank the senators who have taken part in the debate on the Corporations Amendment (Improving Accountability on Termination Payments) Bill 2009. As everyone is aware, there is considerable community concern about excessive termination payments paid to company management at a time when many Australian families are being hit hard by the global recession. Such payments are given to outgoing company directors and executives at a time when they are no longer able to influence the company’s future performance. They provide little benefit to the company and are often regarded by shareholders and the wider community as a reward for failure.

The bill will amend the Corporations Act 2001 to strengthen the regulatory framework relating to the payment of termination benefits to company directors and executives. This is an important initiative of the Rudd Labor government. As highlighted by the global financial crisis, increasingly termination payments have borne no relationship whatsoever to the profitability of the company or to the performance of the recipient. The reforms empower shareholders to reject extreme termination payments that are not in the company’s interest.

The government is taking decisive action. The reforms in the bill reduce the threshold at which shareholder approval is required for a termination benefit from seven times total annual remuneration to one year’s average base salary. The bill expands the scope of the individuals covered by the regulatory regime to include the key management personnel of companies that are disclosing entities. It improves the integrity of the shareholder vote, facilitates recovery of unauthorised termination benefits and substantially increases the relevant penalty provisions.

The bill underwent a four-week public consultation. The government was responsive to stakeholders and decided not to change the shareholder voting arrangements. A number of shareholders identified practical difficulties with changing the timing of the shareholder vote until after the departure of the director or executive. As such, the government has decided to retain the status quo, which allows the shareholder vote to be held at any time prior to the termination benefit being paid to the director or executive.

The regulations supporting the bill have also undergone extensive public consultation. The government has been responsive to stakeholder concerns. The final regulations were released on 3 September. The regulations provide a definition for base salary, clarify and expand the types of benefits which are and are not subject to shareholder approval and prescribe circumstances in which the benefit is given in connection with a person’s retirement. The regulations have been sent to the Ministerial Council for Corporations for its approval, in accordance with the requirements of the Corporations Agreement 2002.

As a whole, these reforms create a sense of justice in the alignment of the profitability of companies and the remuneration of company directors and executives. I note that the Senate Economics Legislation Committee has reviewed the provisions in this bill and recommends that the Senate pass it. In summary, this bill will implement important reforms to strengthen the accountability of company management, empower shareholders to reject excessive termination benefits and promote the provision of responsible levels of termination benefits to company directors and executives.

This is not just an issue in Australia; it is a worldwide issue of concern, particularly in the context of the global financial crisis and some of the grossly irresponsible behaviour we have seen around the globe, particularly in Europe and North America. I note that Australia is one of the first countries to respond with a range of positive initiatives to deal with an important issue that has been highlighted by the global financial crisis.

Debate interrupted.