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Client Update: 'Golden Handshake' Bill becomes law

24 November 2009

In brief: Amendments to the Corporations Act aimed at curbing 'golden handshakes' commence today after receiving Royal Assent yesterday. Shareholder approval is now required for any termination benefits to company executives that exceed one year's base salary. Partner Peter Arthur (view CV) and Law Graduate Jonathan Adamopoulos report.

Background

The Corporations Amendment (Accountability on Termination Payments) Act 2009 (Cth) commences today. It is aimed at 'curbing excessive termination benefits'1 and amends the Corporations Act 2001 (Cth), which previously allowed a benefit to be conferred on company directors on their retirement (retirees) without shareholder approval, provided that the payment did not exceed seven times the retiree's annual remuneration.

Despite extensive public consultation and significant opposition in the Senate, the Act largely reflects what was originally proposed by the Federal Government. The proposal by Senator Nick Xenophon to include a 36-month sunset clause in the Act was voted down.

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The key changes

As reported in our Client Update: Legislating accountability – the 'Golden Handshake' Bill, in June 2009, the key features of the amending Act are:

  • Termination benefits to company executives that exceed one year's base salary require shareholder approval at a general meeting.
  • Annual 'base salary' for this purpose is the average annual base salary over the previous three years. If an executive has held office for less than three years, specific rules apply to the calculation of their average annual 'base salary'.
  • 'Base salary' is defined in the Regulation. The draft Regulation currently provides that it is equal to the total of all benefits such as cash salary, fees, non-monetary benefits and other short-term employee benefits.
  • A benefit is to be understood broadly and is to be determined by reference to its economic or commercial substance, rather than its legal form.
  • All individuals whose details are recorded in the directors' report of a company are caught by the provisions.
  • The notice of a general meeting to consider executive termination benefits in excess of the threshold must be accompanied by details of the proposed payment.
  • An executive must not vote on a shareholder resolution that confers on them a termination benefit that would exceed the threshold.
  • An executive must promptly repay any benefits they receive in excess of the threshold without shareholder approval.

The contracts of all employees in managerial or executive positions that come into existence today or at any later time will be affected by the amendments.2 The provisions will also apply to existing contracts if they are extended or renewed, or varied in any other way.

Footnotes
  1. Explanatory Memorandum, Corporations Amendment (Improving Accountability on Termination Payments) Bill 2009 (Cth), [2.2].
  2. The Bill Schedule 1, cl 43.

For further information, please contact:

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