Wednesday, March 18, 2009

Golden handshakes

The Federal Government has announced planned legislation that would require shareholder approval for executive payouts of more than 1-yr base pay.

The ministerial comments reported below, do not make clear what the justification for the legislation is. Is it related to the amount of the termination payment, the relationship (or lack of) between compensation and performance, or both? While the amount of the payment independent of performance is a broader distributional/social norm issue ("community standards"), the Pacific Brands case appears to be more of a traditional corporate governance/separation of ownership and control issue ("good governance").

Swan to curb 'obscene' salaries, The Age, 18 March 2009 . ... "It is very important that we ensure executive pay is in step with good governance ... and meets decent community standards,'' he told reporters.

Mr Swan said in some instances the size of golden handshakes was "obscene''.

"The government will curb golden handshakes in the form of excessive termination payments,'' he said.

Superannuation Minister Nick Sherry cited the example of former Pacific Brands chief executive Paul Moore, who received a bonus $3.5 million retirement payment when he stood down halfwaythrough 2008 financial year despite the company floundering.

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