THE demise of the golden handshake for retiring executives following a Rudd Government crackdown will require a significant shift in corporate culture.
Shareholders of major companies will be given veto rights over excessive golden handshakes for retiring executives following the Treasurer Wayne Swan’s Productivity Commission investigation into executive remuneration.
Director of Corporate Programs at Southern Cross University, Dr Michael Singleton, says large company boards need to look at their fundamental responsibilities. Rewarding success, not failure, is a return to common sense following multi million dollar payouts to executives in the fallen AIG in the US and those such as Sue Morphett, the CEO of Pacific Brands in Australia.
It has been reported that the chief executive of Macquarie Bank earns more in a year than the entire Federal Parliament. The 226 members of Parliament will receive $32.4 million this year.
The outgoing chief executive of Macquarie Bank Allan Moss, received a $33.5 million salary and bonus package last year. His replacement Nicholas Moore, earned $32.9 million.
“It doesn’t make any sense,” says Singleton.
“Executives are rewarded for both success and failure. There is a social responsibility and the economy is copping the burden. The boards in some of these cases are not fulfilling responsibilities.”
Singleton says many executive contracts were framed at a time when the economy was booming and many believe they would be immune to its cyclical nature.
“There was a sense that it would never end and a lot of contracts were borne out of an economic boom time,” he says.
Erik Mather, managing director of Regnan Governance Research and Engagement proposes that all executive remuneration exceeding a board-determined threshold should be paid in company shares, vesting from years after the grant.
“The days of some executives walking from the remuneration casino with pockets full of cash, while leaving their company with skeletons in the closet must come to an end,” says Mather.
“Capital markets have failed when executives get all the rewards but shareholders bear all the risk. We need fundamental reform of executive remuneration to ensure alignment between executive behaviour and the interests of the company and its shareholders.”
On the Federal Government’s decision to look at a binding shareholder vote for executive termination payments based on 12 months salary, Mather urges vigilance from both boards and shareholders over the next nine months prior to the Productivity Commission handing down its recommendations.
“The nine-month timeline should not be an excuse to wait to improve executive remuneration arrangements,” he says.
Singleton agrees: “We have to learn from this. There is a lack of good corporate governance in line with shareholder expectations. The challenge will be determining what is reasonable in remuneration by the views of shareholders.”
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