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The End of the Golden Handshake?
Alan Thornhill’s article below first appeared on New Matilda today. Our thanks to Alan for permission to republish on Webdiary.
The End of the Golden Handshake?
by Alan Thornhill
Under pressure over the huge bonuses paid to executives of failing companies, the Government has finally announced it will take action.
Mounting community outrage at huge payments to departing executives has led the Federal Government to announce an inquiry into the issue — but first it will pass law to give shareholders more power over payments.
At present, shareholders don't have to be consulted unless these termination payments exceed a figure seven times a director's annual base pay. Under the new arrangements, announced by Treasurer Wayne Swan yesterday, executives would need their shareholders' approval for any termination payment exceeding one year's base pay.
"The Government's reforms will empower shareholders to more easily reject such payments, when they are not in the interests of the company, the shareholders or the community," Swan said.
The Treasurer said that presently a director with an average salary package of $2 million a year over three years could receive a termination payment of up to $14 million without shareholder approval.
Swan said these payments had become "more common and in some cases more obscene", and that "[s]ome termination payments have borne no relationship whatever to the performance of the company or the pay of its executives." The Government has also ordered a wide-ranging inquiry into excessive executive pay.
Swan has also tried to allay concerns that boards and executives would merely find other ways to get around any changes to the rules. He announced that the Government is also broadening its definition of termination payments, to close up some of the current loopholes. He said the new legislation would catch all kinds of payments given at termination. But the new laws will not be retrospective, meaning that existing termination contracts would be allowed to proceed.
The Opposition has responded to the announcement by claiming that the Government has belatedly followed Opposition advice in reforming executive pay rules. But in truth it's an issue that both major parties have dodged for a long time.
The moves follow widespread criticism of payouts to executives here and overseas, including outrage at reports that the retiring CEO of Pacific Brands, Paul Moore, is to receive a $3.4 million termination payment. The announcement of Moore's departure, from December this year, came after the company's decision in February to close its factories throughout Australia and move its manufacturing operations overseas, leaving more than 1800 Australian workers, including many in regional areas, without jobs.
In announcing the Productivity Commission inquiry into executive payments, Corporate Law Minister Nick Sherry was blunt in his condemnation of executive greed. "Unrestrained greed in the financial sector has led to the biggest global recession since World War II", Sherry said, and had so far led to the collapse of more than 50 banks and put millions out of work.
Sherry also announced that former chairman of the Australian Competition and Consumer Commission Professor Allan Fels would join the inquiry as an associate commissioner. He said Professor Fels had worked in the area of competition and consumer regulation for 16 years, and would bring "a wealth of experience" to the role.
Sherry promised that the inquiry would look into a broad range of issues, including "international trends and responses to the problems of excessive risk-taking and corporate greed". "There is significant community concern about excessive pay practices, particularly at a time when many Australian families are being hit by the global recession," he declared.
Sherry also said that the Productivity Commission would look in particular at the interests of Australians who now have big stakes in the nation's major companies, through the shareholdings of their superannuation funds.
"The Rudd Government has made it clear that it will examine all workable options with regards to executive remuneration," Sherry said, promising that the public would be given plenty of opportunity to make its views known to the commission, which will be required to report by the end of the year.
It was also announced that the inquiry would look into the practice of companies offering their executives loans which they're not obliged to repay.
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Gordon Gecko
John Fuller is off thread. The topic is shareholder / stakeholder rights and executive salaries and accountability. What the pollies get is nothing compared to corporate louts who botch companies' long term investment potential for quick share price rises tied to their renumeration (let alone some of the more blatant swindles that have turned up!!) and get their bonuses paid by stakeholders kept unaware of long term viability deterioration in the interest of a managerial / proprietorial inner clique.
(In theory) politicians are paid for increasing rather than decreasing employment, by the way. And (once again, in theory) they are paid fixed incomes a fraction of the Sol Trujillos of the corporate world.
Accountability for executive cretins is way overdue. And not least because the Gordon Gecko changes in the nature of the duties of management and the nature of the company / corporation over recent decades. If only companies were still valued for / at what they produced rather than as chips in a casino game.
To think that an executive in America could get paid close to half a $billion for irresponsibly running a major bank into the ground (what performance relation??) when billions live on less than a dollar a day across the world, is putrid and should not be whitewashed.
Accountability
Paul Walter, surely you are not comparing Sol Trujillo with Wayne Swan? The reason why Swan and other pollies are paid a fraction of what Trujillo is that they do a fraction of the work that Sol does.
Who would you rather have running a company, Trujillo or Swan? No contest really when you see what Swan has done in the past 12 months on the employment front.
Next you will comparing Sharan Burrows with some of the country's top executives.
Accountability for political cretins is way overdue too.
Give me a break...
John Fuller: "Surely you are not comparing Sol Trujillo with Wayne Swan."
Of course not. Wayne Swan is not half the shyster Trujillo is, or likely a tenth as destructive.
A working example of the Peter Principle:
Which is why Duck gets paid a relative pittance for the relatively minor and publicly accountable job of Treasurer of Australia, while Trujillo is paid a fortune for rendering a once viable Telstra inoperable by callous reduction of necessary workforce by the tens of thousands of real people, whilst overmuch debt financing for divis and personal bonuses related to share value occur, in order to have it conform to the disastrous Howard privatisation model.
Clever Rudd
What is clever about Rudd's move here is that instead of legislating directly to control the executive nasties he is strengthening the right of shareholders to determine the nature of the farewell gift. Shareholders are as little keen on giving away their money as others so look out for the return of the gold watch as thank you.
In old fashioned class terms - the behaviour of executive management over the period since the late 80's, especially in terms of bonuses tied to performance and share issues, really means that this group has effectively become a defacto ruling class. What they lack, of course, is the family history of ruling class consciousness so their behaviour is as gross as the old fashioned robber barons. Consequently they have exposed themselves.
land of the free (citation jets)
Nothing compared to America, where most of these habits eventuate. The latest has one of them (Citibank?) spending $110 million of their bail out money on private jets and housing facilities for same.
Swan's golden handshake
The Treasurer said that presently a director with an average salary package of $2 million a year over three years could receive a termination payment of up to $14 million without shareholder approval.
Swan said these payments had become "more common and in some cases more obscene", and that "[s]ome termination payments have borne no relationship whatever to the performance of the company or the pay of its executives."
MPs' super payouts were up to 20 times greater than what they paid into them.
The payout would recognise his 15 years as a backbencher and 34 months as Treasurer. Mr Swan would also be entitled to a lifetime gold pass giving him access to taxpayer-funded travel.
If he chose, Mr Swan could instead opt for more than $500,000 as a lump-sum payment plus an annual pension for life worth about $52,000 - again indexed.
If he lived to 75 years of age, Mr Swan's pension payout would total more than $1.5 million, more than six times his annual parliamentary salary.
And Senator Sherry, who had 20 years on the back bench before Labor won the 2007 election, is understood to be eligible for $117,475 a year for life if he did not contest the next election.
He could opt for a lump-sum approaching $590,000 plus an indexed annual pension of nearly $60,000 a year.
He would also be entitled to free taxpayer-funded travel for life.
Let's not forget Senator Sherry's previous travel rorts.
The retiring CEO of Pacific Brands, Paul Moore, is to receive a $3.4 million termination payment. The announcement of Moore's departure, from December this year, came after the company's decision in February to close its factories throughout Australia and move its manufacturing operations overseas, leaving more than 1800 Australian workers, including many in regional areas, without jobs.
Swan by the end of the year will be responsible for the loss of 500,000 jobs, but he will still get his perks when the time comes.