The Government has introduced the Corporations Amendment (Improving Accountability on Termination Payments) Bill into Parliament.
It inserts new sections 200AA and 200AB in the Corporations Act and amends sections 200A-G and J relating to the payment of termination benefits to company directors and executives.
The Corporations Act currently allows for termination benefits up to seven times a director’s total annual remuneration package before shareholder approval is required. Additionally, only company directors’ termination benefits are subject to shareholder approval.
If passed, termination benefits for company directors and executives exceeding one year’s average base salary are subject to shareholder approval. In addition, the range of personnel whose termination benefits can be subject to shareholder approval is expanded from directors to also include senior executives or key management personnel. The Bill also clarifies the types of benefits that are subject to shareholder approval
The new rules will not apply retrospectively to existing contracts. The new arrangements will apply to contracts that are entered into and renewed or extended.
The new rules will also apply to existing contracts for which a variation of a condition is made. Minor changes to an existing contract would not be considered a variation of a condition. However, changes that effect an essential term, including any term relating to remuneration would be considered a variation of a condition.