Client Update: Legislating accountability the 'Golden Handshake' Bill
29 June 2009
In brief: The Federal Government has reintroduced the Corporations Amendment (Improving Accountability on Termination Payments) Bill 2009 following a process of public consultation in response to widespread opposition to the Bill in its original form. Partner Peter Arthur (view CV) looks at the key points of the legislation.
As previously, the Bill will lower the threshold required for shareholder approval of a termination benefit to one year's base salary. The definition of 'base salary' will be specified in regulations and finalised 'following further targeted consultation'.1 Where service is for less than one year, the threshold will be prorated. This means that it continues to be the case that 'where an executive is terminated after, say, one month of service for reasons which may not be related to their performance, for example because of a merger, or a change in company strategy or corporate structure, the Bill will prevent the executive receiving any payment in excess of one month's base salary, unless shareholder approval is obtained.
The Bill also increases the range of individuals whose termination benefit will be subject to shareholder approval. All key individuals, who have their remuneration disclosed in the remuneration report, will be captured by this requirement.
The Bill contains a clear statement that the term 'benefit' should be interpreted broadly, and requires that the substance of any payment should prevail over its legal form. In addition there will be a new regulation making power to prescribe certain types of payments which are, or are not, considered to be a termination benefit. This should at least reduce ambiguity about whether specific types of payments require approval. The Government will also undertake 'targeted consultation on the detail of these regulations',2 which will be finalised in time for the commencement of the Bill.
The Government has been responsive to submissions received as part of the consultation process, in that it has decided not to change the shareholder voting arrangements, as it originally proposed. This is because of the practical difficulties that would be created by changing the timing of the shareholder vote until after the departure of the director or executive. Consequently the Bill retains the status quo which allows the shareholder vote to be held at any time prior to the termination benefit being paid.
The Bill also introduces an express requirement that the termination benefit must be repaid immediately, where it has been given without the necessary shareholder approval. Directors and executives will hold such authorised benefits on trust for the company.
Penalties for breach of these provisions will be increased substantially. Potential fines are set at $19,800 for individuals and $99,000 for corporations.
The Bill will not affect existing contracts. It will apply to all new contracts that are entered into or extended after the Bill's commencement date. It will also apply to contracts that have undergone a substantial variation after that date, even if the variation does not relate in any way to the remuneration or the termination of the executive or director.
It is clear that the Government intends to hold firm in its view that a termination payment, which is made at the time when an outgoing director or executive is no longer able to influence the company's future performance, is not an appropriate mechanism for rewarding those persons, unless the shareholders consider otherwise. What remains questionable about the Bill is the notion that a director or executive is being 'rewarded' when they receive a benefit that exceeds by any amount the threshold of 12 months' base salary.
If you have any questions on this or any other workplace relations matter please contact one of the below.
- Peter ArthurPartner,
Ph: +61 2 9230 4728
- Tim FrostPartner,
Ph: +61 2 9230 4930
- Paul QuinnExecutive Partner - Corporate & Competition,
Ph: +61 3 9613 8704
- Jamie WellsPartner,
Ph: +61 7 3334 3268
- Andrew KnoxPartner,
Ph: +61 7 3334 3356
- Andrew PascoePartner,
Ph: +61 8 9488 3741