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Mallesons Stephen Jaques
Who does this affect?

All corporations, directors, executives, remuneration committee members and their advisers.

What do you need to do?

Consider the implications of the proposed laws for executive employment contracts and remuneration arrangements.

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Executive termination benefit laws delayed in senate - 18 September 2009

The Government’s proposed reforms to laws regulating executive termination benefits have been delayed in the Senate. This means the earliest the laws can be passed is when Parliament resumes on 17 October 2009.

We have outlined the implications of the Corporations Amendment (Improving Accountability on Termination Payments) Bill 2009 and the Regulations to support the Bill in previous alerts:

The Bill has been approved by the House of Representatives but has stalled in the Senate due to amendments proposed by the Opposition and other minority parties. The key amendments which have been proposed are outlined below:

  • The Opposition proposes that the benefit limit should be referable to one year’s total remuneration (as defined by regulations) rather than one year’s base salary;
  • The Greens have proposed that:

 
  • benefits provided to an executive must meet the requirements of a company remuneration policy which has previously been approved by shareholders;
 
  • companies must disclose details of any remuneration consultant it engages to develop its remuneration policy and the fees paid for those services in their annual report; and
 
  • any general meeting called to approve a retirement benefit should not be called for the sole or dominant purpose of approving the benefit (a condition which appeared in the Government’s previous exposure draft of the Bill);
  • Senator Fielding has proposed that the benefit limit be fixed at $1 million;
  • Senator Xenophon has proposed that:

 
  • shareholder approval should be required for any performance related benefits or bonuses or sign on payments where the sum of those benefits in any year exceeds, or is capable of exceeding, the executive’s annual base salary;
 
  • shareholders should be advised of the reasons why an executive is departing a company (ie whether the executive has resigned or been terminated);
 
  • shareholders should be required to approve the maximum amount of any benefit.

There is absolutely no indication that any of these proposed changes will be acceptable to the Government.

The delayed commencement of the new laws is significant because the laws have major consequences for executive termination benefits.

As noted in previous alerts, the new laws will not apply to retirement from an office held under a contract entered into prior to the laws commencing unless that contract is extended or materially varied after the commencement of the new laws.

We will update you further on the progress of these laws once Parliament resumes in October.

In the meantime, if you have any questions regarding the implications of these laws, please contact any of our partners named in this alert.

This publication is only a general outline. It is not legal advice. You should seek professional advice before taking any action based on its contents.