Tuesday, March 17, 2009

Government gets tough on executive salaries

I'm going to cut & paste from a forum post (sorry but I'm being lazy!)

I don't get this government - I really don't...

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Originally Posted by theaustralian
WAYNE Swan has dramatically moved to curb executive salaries by moving to cap the level of "golden handshakes" available to departing company directors.
Treasurer Wayne Swan

Speaking this afternoon, the Treasurer announced that shareholder approval would now be required where a golden handshake to a departing executive exceeded one year's base salary.

The current law had allowed termination payments to reach up to seven times a director's total annual remuneration package before shareholder approval was required.

Mr Swan issued a blunt warning to executives to match company performance with remuneration.

“The Government does expect you to do the right thing by the community or the country,” Mr Swan said.


Now I can't say I'm a fan personally of the big payments to executives but this seems to be yet another populist move by the government. Oh quick we have to be seen to do something!!!! Let's see what the ACA/TT polls are saying... LET'S GET THE COMPANY EXECUTIVES!!!!


I really don't understand how this is going to help solve the economic crisis but thanks Mr Swan & Mr Rudd - I understand you are at least doing something!

I have to agree with this op-ed though
Originally Posted by theaustralian
HONESTLY, how is this going to support the Australian economy in its time of need? How will giving shareholders the right to block excessive payouts to departing executives save the country from recession now, or at any time in the future?

Doesn't Wayne Swan have bigger issues to deal with than a few fat cats milking an otherwise workable system?

Executive salaries are an area where politicians are perfectly entitled to have a view. Bashing Pacific Brands' Sue Morphet undoubtedly appeals to Labor's working families. But it's not an area that needs their heavy-handed legislative intervention.

The onus should be on the corporate sector -- if it wants the support and goodwill of the community -- to weed out the carpet-baggers and prove it does not need such intervention.

There are, unfortunately, examples of egregious payouts to executives who failed abysmally, sometimes leaving behind the smoking ruins of once-great companies. They are high profile but they are the exception. Where is Swan's evidence that abuse of the system is widespread? (Presumably, that's what the inquiry will uncover.)

The Treasurer's proposed new law -- under which any termination payout worth more than one year's base salary would be subject to a binding shareholder vote -- would not, for example, capture Sol Trujillo's coming $3 million golden goodbye.

The fact is, the current system of giving shareholders a non-binding vote on executive salaries (which boards are free to ignore) generally works. Some companies still thumb their nose at the will of shareholders. In 2007, Telstra, for example, ignored the votes of two thirds of its investors when it pressed ahead with a generous executive remuneration scheme. The $10.7 million payout to OZ Minerals' Owen Hegarty was particularly galling.

But many companies have been shamed into winding back termination payouts to their executives -- so-called golden parachutes -- fearful of an embarrassing protest vote. And besides, it's easier to ignore the will of shareholders when your stock and profits are going up. Expect a significantly louder round of shareholder protests when remuneration comes up during this year's annual general meeting season. The system and boards haven't yet been truly tested in a bear market.

In publicly listed companies, shareholders get a binding vote on the selection of their directors. They entrust those directors to appoint executives to run the company for the good of shareholders. That includes setting appropriate salaries. If the board fails, shareholders can get rid of them. It's not perfect -- and it does make it difficult to punish failed executives who've long left companies -- but it works.

At least shareholders get to vote every year. Where's the annual vote for taxpayers who have been forced to fund significant “termination” payments -- guaranteed super at 75 per cent of salary -- to failed politicians?

An inquiry into executive remuneration probably isn't a bad thing. Any system that better ties pay to the long-term performance of companies -- rather than unsustainable short-term financial or stock price gain -- should be encouraged.

But will a binding vote on termination payouts actual lead to better corporate behaviour or lower salaries for executives? Sure, a bigger part of their pay might be made up of shares and options, which better reflect the performance of their company. An alternative, however, is for boards to simply shift a chunk of remuneration from the binding component of the package (termination payments) to the non-binding component (everything else).

That just means paying useless executives more for longer. And it's often difficult to tell exactly how bad an executive's been until long after they've left the building.


We can all rest assured that the Government is out there tackling the really big issues!