Australia will outlaw excessive “golden handshake” payments to company executives, the government said yesterday amid outrage over bonuses collected by bosses of troubled US insurer AIG.
Australian Treasurer Wayne Swan and Corporate Law Minister Nick Sherry announced the crackdown, under which termination payouts worth more than a year’s base pay would require shareholder approval.
“What we have seen for the past decade, under laws we have inherited from the former government, is the retirement gold watch replaced by a truck load of gold bullion,” Sherry said.
“That’s why we have decided to take some strong and decisive action and carry our major reform in this area of golden handshakes,” he told reporters in the Australian capital.
The move, unveiled after Canberra acknowledged public “revulsion” over huge executive salaries, will extend the rules to cover a wider range of executives and will slap criminal penalties on those who flout the laws.
“Golden handshakes, particularly when companies have not performed or where workers are being retrenched, are simply a means of rewarding failure and are absolutely unacceptable,” Swan told parliament.
“So we are sending a very clear message to corporate Australia — your actions are under scrutiny,” he said.
Current laws allow company directors to receive termination payments of up to seven times their total annual remuneration, which is often much more than base pay, before shareholder approval is required.
“Shareholder approval will now be required for a termination payment exceeding one year’s base pay,” Swan said.
In addition, the curb on pay-outs will be extended to cover all executives named in a company’s remuneration report, rather than just its directors. The government also ordered its economic advisory body, the Productivity Commission, to investigate executive salaries and report back within nine months.
The clampdown came amid outrage in the US over a decision by insurer AIG to grant staggering bonuses to employees who brought the giant firm to the brink of collapse, forcing a multibillion-dollar government bailout.
There has been similar anger in Australia, with Sherry citing recent examples that he said the new laws would prevent.
One was a director at OZ Minerals, who received an A$8.35 million (US$5.43 million) final pay-out, despite the fact that the mining company lost A$2.5 billion last year and was facing receivership until a Chinese firm launched a takeover bid.
Another was an A$3.4 million payout made by clothing manufacturer Pacific Brands to its departing chief executive last year, even though the company was drawing up plans to sack 1,850 workers at the time.
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