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Senator Nick Sherry joins Lateline Business -

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Senator Nick Sherry joins Lateline Business

Broadcast: 18/03/2009

Reporter: Ali Moore

Senator Nick Sherry, the Minister for Corporate Law, joins Lateline Business to discuss the
Government's proposed changes to executive termination payouts.

Transcript

ALI MOORE, PRESENTER: The Government is changing the law to require shareholder approval for all
executive termination payouts above one year's salary. As well, former ACCC boss Alan Fels and the
Productivity Commission will hold an inquiry into the broader issue of executive pay. The Minister
for Corporate Law is Nick Sherry. He joined me from Canberra earlier this evening.

Nick Sherry, welcome to Lateline Business.

NICK SHERRY, MINISTER FOR CORPORATE LAW: Thank you. Good evening. Good evening to your listeners.

ALI MOORE: How common do you think excessive golden handshakes and excessive salaries are in this
country?

NICK SHERRY: Well in terms of the golden handshakes, the reforms we've announced today, I believe
we've seen a significant shift over the last 10 years or so, and according to the figures I've seen
we're seeing payouts terminations of double, at least double, of the CEOs pay, and this shift at a
time when workers are losing their jobs. And, as I said today, the days of the gold watch have been
replaced by a truck of gold bars. We've got to change this culture in Australia.

ALI MOORE: But do you think it's common or do you think it's the exception, and how do you define
"excessive"?

NICK SHERRY: Well, I certainly don't believe that it is reasonable that a golden parachute
termination payment should exceed one year's pay. I just don't believe that that is appropriate.
And, at the end of the day, it's now going to be the shareholders' call. There is rightly a lot of
concern, genuine concern about this in the Australian community as well as the shareholding
community.

ALI MOORE: So that one year base salary will be the benchmark for when shareholders get to vote on
a termination payment. Will that base salary include accumulated benefits such as superannuation or
previous bonuses or perhaps share allocations?

NICK SHERRY: It will be base pay only. The one exception is statutory superannuation entitlements -
that's the one exception because that's a statutory payment. But in terms of basic pay, it's now to
be one year's - not total package - it's one year's basic pay.

ALI MOORE: Is that gonna provide an insentive for companies to, if you like, bulk up the basic pay
because of course the higher the basic pay, the less likely any termination payment is gonna look
too generous and have to go to a shareholder vote?

NICK SHERRY: Oh, look, I don't believe so. We've appointed Professor Fels who will, with the
Productivity Commission, look very intensively at the other part of the equation. We've addressed
today a major focus of community and shareholder concern, these golden parachutes termination
payments. I have to say often when payments for failure. And the other part of the equation: I
believe Professor Fels will come up with some effective answers.

ALI MOORE: What difference do you think a binding vote is going to make, given that to date,
non-binding votes have only rarely elicited any complaint? You used today a couple of examples; one
was that of Owen Hegarty, and in fact that was a rare and headline-making example. More often than
not remuneration votes go through unopposed.

NICK SHERRY: Well I believe this will put very significant - very, very significant downward
pressure. I mean, shareholders haven't had the right to determine a golden parachute. They haven't
had that right. I believe they'll exercise it in the current climate, and we will see significant
restraint and downward pressure in this area. I don't believe some of these golden parachutes in
the millions and millions of dollars. I don't believe they would have got through a direct
shareholder vote. I just don't accept that that would happen.

ALI MOORE: In a moment we're about to hear the concerns of the chairman of the Australian
Foundation Investment Company, or AFIC, Bruce Teele. One of the concerns that he raises as a
potential issue regarding this vote on termination payments is what impact it will have on
companies as they hire in the international market. Could it be a disincentive because of course
any vote on a termination payment will only happen after an executive from offshore has accepted
the job?

NICK SHERRY: Well a termination payment golden handshake by its very nature comes at the end of the
life of the chief executive, and we believe it's practical and workable. But the broader issue of
the impact and any claimed - and I must stress the word "claimed" impact on the ability to recruit
internationally - will be examined by Professor Fels. One of the specific terms of reference is to
look at Australia's international competitiveness. Having said that, frankly, I am very confident
that we've got an abundance of talent in this country of senior management talent, and frankly I
think we've got a bit caught up in the Hollywood cult over the last decade or so. You know,
everything's been inspired by the need to keep up with the United States. Well, we've seen some of
the consequences of that. And I'm very confident we've got, in the overwhelming majority of cases,
executive talent in this country who can fit the bill for most of these top positions.

ALI MOORE: Minister, thank you for talking us to.

NICK SHERRY: Thank you. Good evening.