Shareholders Given The Power To Reject Excessive Termination Payments

The Federal Government's legislation on executive pay has passed through both houses of Parliament and is expected to take effect next week. These changes were announced by the Government in March 2009 in response to shareholder backlash against termination benefits paid to senior executives, particularly during the GFC when share prices were falling.

The intention of the Bill is to strengthen the regulatory framework relating to the payment on termination of benefits to company directors and key managers. The Bill caps executive and managerial retirement/termination benefits at the equivalent of 12 months base salary unless shareholder approval is given.

In summary the Bill:

• restricts the payment of termination benefits in excess of 12 months base salary to directors and executives without shareholder approval;