Right: A solemn President Barack Obama watches Treasury Secretary Timothy Geithner announce new rules for executives of bailed-out United States companies.
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Background information
Checks on executive salaries in the United StatesOn February 5, 2009, President Barack Obama and Treasury Secretary Timothy Geithner announced the United States government will require financial companies getting Government aid (or bailout packages) in the future to cap compensation of top officials at $US500,000 ($780,000) a year.
The United States administration is imposing conditions that would force greater transparency for expenses such as corporate jets, office renovations, entertainment and holiday parties, and restrict severance pay when executives leave the company.
While pay would be limited, there are provisions that would allow additional compensation in the form of restricted stock that cannot be sold until taxpayers have been paid back with interest. Senior executive compensation plans also must be submitted to a non-binding shareholder resolution.
The compensation cap may be waived for companies getting aid through what the administration terms "generally available capital access programs'' through full public disclosure and submission of a resolution to shareholders if requested.
Checks on executive salaries in Australia
Under the former provisions of the Corporations Act in Australia, a company director with seven years of service and an average annual pay of $2 million over his final three years before retirement was entitled to a termination payment of $14 million without shareholder oversight. This is because there are no restrictions applied on company executives' retirement packages so long as they are no more than seven times the executives annual salary.
On March 18, 2009, the federal Government announced changes to the Corporations Act. Under these changes to the Corporations Act, any payout beyond the value of one year's pay (excluding bonuses) would have to go to a shareholder ballot. The new rules would be backed by criminal sanctions.
The federal Government has also announced a Productivity Commission inquiry in the payments received by company directors and executives.
The Australian Productivity Commission Inquiry into Company Directors and Executives Remunerations
The press release announcing the establishment of a Productivity Commission inquiry into company directors and executives stated, 'Professor Allan Fels AO has been appointed as an Associate Commissioner to the PC to be a key member of the examination. The Productivity Commission Chairman Gary Banks will preside over the examination along with Commissioner Robert Fitzgerald.
Unrestrained greed in the financial sector has led to the biggest global recession since World War II. It has now spread across the world and instigated significant slowdowns in the US, Europe, China and caused more than 50 banks to collapse and millions of jobs to be lost.
There is significant community concern about excessive pay practices, particularly at a time when many Australian families are being hit by the global recession.
The Rudd Government is determined to ensure regulation of executive pay keeps pace with community expectations, particularly as job losses increase as a result of the global recession.
This will be a broad-ranging examination that will consider the existing regulatory arrangements that apply to director and executive remuneration for companies that are disclosing entities under the Corporations Act 2001, including shareholder voting, disclosure and reporting practices.
The inquiry will also examine international trends and responses to the problems of excessive risk taking and corporate greed.'