Developments in the United States have contributed to this interest. The US Senate has been asked to consider a proposal to recover a large proportion of retention bonuses paid to executives of AIG, and other institutions that have received taxpayer assistance, via the introduction of a 70% tax on these payments.
There is a perceived lack of nexus between executive remuneration and performance, and concerns about independence and transparency in setting and paying the remuneration.
There are many reported instances in recent times of companies announcing voluntary reductions in executive salaries, and in some instances, of executives returning bonuses paid to them during the 2008 period. However some governments have proposed reforms to limit the amount companies can offer their executives, causing concern within the business community as to whether companies will be able to offer adequate incentives to attract and retain the best people in an international market for talent.
One example of government intervention is the recent announcement in Australia of proposed reforms to the corporations legislation, aimed at curbing termination payments to executives. These reforms include a proposal to cap termination payments at 1 year’s base salary unless shareholder approval is obtained. The proposed reforms also widen the scope of regulation of termination payments by:
- covering not just current and former directors, but all executives named in the company’s remuneration report;
- broadening the definition of ‘termination payment’ to include all types of payments and rewards given at termination.
In the People’s Republic of China it has been reported that a draft regulation on executive remuneration is soon to be submitted to the State Council for approval. The draft regulation proposes a pay ceiling of 2.8 million Yuan a year for senior executives of all state-owned enterprises, commencing with the financial sector. Under the proposal, executives may also receive performance-linked pay of no more than three times the basic salary.
Employers should be mindful of developments and how these will affect their ability to attract and retain talent at the executive level.
ALB — George Cooper,
Practice Leader Workplace Law & Advisory – Asia Freehills