The Federal government believes its decision to to curb executive pay is well timed.
Especially as it coincides with an outbreak of public anger in the United States, at big bonuses that the American International Group decided to pay its executives, even though the big insurer is already on taxpayer funded life support.
So far, there are few examples of quite such flagrant abuse of taxpayer funds in Australia.
But one case comes close.
Recent reports suggest that the retiring CEO of Pacific Brands, Paul Moore, is to receive a $3.4 million termination payment. That raised public eyebrows.
Especially as Mr Moore’s departure, from December this year, followed the company’s decision in February to close its factories, throughout Australia, and move its manufacturing operations overseas.
More than 1,800 Australian workers, including many in regional areas, were sacked as a result.
The company has received millions of dollars worth of support from the public purse, over the years.
The government’s curbs will start with big termination payments, that are often called golden handshakes.
At present, shareholders don’t have to be consulted unless these termination payments exceed seven times a director’s annual base pay.
But under the new arrangements, that the Treasurer Wayne Swan announced yesterday, shareholder approval would be required for any termination payment exceeding one year’s base pay.
“The government’s reforms will empower shareholders to more easily reject such payments, when they are not in the interests of the company, the shareholders or the community,” the Treasurer said.
Mr Swan said these payments had become “more common and – in some cases – more obscene.”
The government has also ordered a broad ranging inquiry into excessive executive pay.
These decisions will certainly attract criticism from the Opposition Leader, Malcolm Turnbull, who recently described Kevin Rudd as “the wealthiest Prime Minister Australia has ever had.”
But the issue will also be a difficult one for the Liberals to handle.
They are often accused of being too close to big business.
Mr Turnbull, himself, drew sharp criticism last month, after he said Mr Rudd had been “enriched” by the neo-liberal policies, that the Prime Minister had criticised, in an essay.
But the issue is tricky, for Labor, too.
Especially as Mr Rudd’s wife, Therese Rein, a highly successful business-woman, might, herself, be affected by the new curbs.
The Corporate Law Minister, Nick Sherry, who announced the, inquiry, said it would be conducted by the Productivity Commission.
He was blunt in his condemnation of executive greed.
“Unrestrained greed in the financial sector has led to the biggest global recession since World War II,” Senator Sherry said.
Mr Swan said, too, that the public had been “rightly offended by excessive golden handshakes, in which directors and executives were rewarded for poor company performance.”
The government is also broadening its definition of termination payments, so that they cannot be exempted on technicalities.
But the new laws will not be retrospective.
Mr Swan said existing termination contracts would be allowed to proceed.
Another minister, Senator Nick Sherry was even more blunt.
He said the global economic crisis had been ” precipitated by executive greed.
And he said that crisis: “…has now spread across the world and instigated significant slowdowns in the US, Europe, China and caused more than 50 banks to collapse.”
Millions of jobs had been lost, as a result, he added.
Senator Sherry announced, too, that Professor Allan Fels, a former chairman of the Australian Competition and Consumer Commission, would join the Productivity Inquiry into executive pay levels, as an associate commissioner.
He said Professor Fels would bring “a wealth of experience” to the role.
Professor Fels has worked in the area of competition and consumer regulation for 16 years, Senator Sherry said.
The Senator promised, too, that the inquiry would be broad ranging.
“There is significant community concern about excessive pay practices, particularly at a time when many Australian families are being hit by the global recession,” he declared.
He said the inquiry would also examine international trends and responses to the problems of excessive risk taking and corporate greed.
“The Rudd government has made it clear that it will examine all workable options with regards to executive remuneration,” Senator Sherry said.
And he promised that the public would be given plenty of opportunity to make its views known.
“All interested parties are invited to make a submission,” he said.
The commission will be required to report by the end of the year.
The government has asked it to study trends in executive pay, both in Australia and overseas.
It also ordered the commission to report on the effectiveness of existing laws, for the oversight of executive pay.
The government said, specifically, that loans to executives, which do not have to be repaid, would come within the scope of the inquiry he ordered.
Senator Sherry also said that the Productivity Commission would look, in particular, at the interests of Australians who now have big stakes in the nation’s major companies, through the shareholdings of their superannuation funds.