With the first anniversary of Corporations Amendment Act (2009) just around the corner, employers are being encouraged to review their executive employment contracts to ascertain if potential termination payments may be over the legal threshold and where shareholder approval is required, according to Harmers Workplace Lawyers.
The legislation, which was introduced on 24 November 2009 and served as an amendment to the Corporations Act 2001, sought to address the quantum of termination benefits that can be provided to certain executives without shareholder approval.
Under the so-called ‘golden handshake’ legislation, termination payments and benefits for key managerial personnel for both publicly-listed companies and office holders of private companies require shareholder approval, should the value of the total benefit exceed one year’s base salary, with very limited exceptions.
Shana Schreier-Joffe, Managing Partner of Harmers Workplace Lawyers, said, “It is up to employers to ensure their individual contracts have been updated to reflect the changes for large payouts to employees.
“Despite what many think, this legislation does not just affect high-profile CEOs, but managerial and senior executive employees. They may find they are in fact not entitled to the payout figures in their contracts of employment, in the event of a termination,” she said
For employees who have entered into a contract before 24 November 2009 these provisions restricting termination payments will not apply – unless the contract is renewed, extended or altered after this date. However, even an increase in remuneration, or a change in duties or position will trigger the application of the new legislation.
“Employers should be aware of payout terms within individuals’ contracts dated before 24 November 2009 as any changes or variations to the contract may deem the employer applicable to prior shareholder approval as a consequence of the variation” she said.
Ms Schreier-Joffe also advises employers to be aware of potential changes to salary legislation in the coming nine months, following the release of a report by the Productivity Commission outlining executive remunerations in Australia.
The report, which was released prior to the election and was largely accepted by the Government, includes a number of recommendations relating to: board capacities; conflicts of interest; disclosure; remuneration principals; shareholder engagement and implementation issues.
A key recommendation in the report proposed a ‘two-strikes’ rule where shareholders are entitled to ‘spill’ the board if shareholders are not happy with the company’s remuneration report.
Under the ‘two-strikes’ rule, if 25 per cent of shareholders expressed their dissatisfaction with the remuneration report with a ‘no’ vote, the board would be required to explain how the concerns were addressed in the following report. If a 25 per cent ‘no’ vote was expressed the following year, elected directors would have to submit for re-election within 90 days.
“The Productivity Commission’s recommendations may become legislation as early as July next year, so employers should ensure they keep up to speed on any changes, in the event the legislation affects company policy and operations,” Ms Schreier-Joffe said.