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Improving accountability on termination payments – Post implementation Review – Department of the Treasury

On 23 November 2009 the Corporations Amendment (Improving Accountability on Termination Payments) Act 2009 (the Act) received Royal Assent. The Act resulted in lowering the threshold for shareholder approval from seven times the total annual remuneration package to one year’s average annual base pay. Other amendments included:

  • expanding the scope from directors to include key management personnel; and
  • broadening the definition of what constitutes a ‘benefit’, and the creation of a new regulation‑making power to specify whether certain types of payments are, or are not, a termination benefit.

Before the commencement of the Act, shareholders approved the payment of termination benefits to outgoing executives and directors of companies only if the termination payment exceeded seven times the recipient’s total annual remuneration. A Regulation Impact Statement (RIS) was required for the decision to lower the threshold for shareholder approval, but an adequate RIS was not prepared before the decision was made. The Department of the Treasury was reported as non-compliant with the Australian Government’s best practice regulation requirements in the Best Practice Regulation Report 2008-09. Where a proposal proceeds without an adequate RIS the resulting regulation must be the subject of a Post-implementation Review. The Post-implementation Review found that lowering the threshold for shareholder approval achieved its policy objectives to: better empower shareholders to disallow excessive termination benefits, particularly where they are a reward for poor performance; improve the accountability of company management in setting remuneration; and promoting responsible remuneration practices. The Post-implementation Review concluded that the policy resulted in an increased level of shareholder control over termination payments to key management personnel, and greater accountability of company management for decisions about termination payments. The Post-implementation Review prepared by the Department of the Treasury was assessed as adequate by the Office of Best Practice Regulation.