By James Hamilton, J.D., LL.M.
The Australian Treasury said that it will seek legislation expanding the categories of termination payments to company executives, so called golden handshake, subject to shareholder approval. Under current law, only golden handshakes extended to directors are subject to shareholder approval; and the termination payments can reach up to seven times a director's total annual remuneration package before such approval is required. This effort is part of an ongoing broader review of executive compensation.
The legislation will amend the Corporations Act to significantly lower the threshold at which termination payments must be approved by shareholders from the current level down to one year's average base salary. In addition, shareholder approval mandates will be extended to cover all those executives named in the company's remuneration report. In addition, the Government will broaden the definition of "termination benefit" to catch all types of payment and rewards given at termination.
Currently a director with seven years' service and an annual average remuneration package over the last three years of $2 million a year would be entitled to receive a termination payment of up to $14 million without seeking shareholder approval. However under the Government's reform, approval will now be required for any termination payment exceeding one year's base salary.
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