Alert – Golden handshakes capped by legislation
25 November 2009
The new laws capping golden handshakes at one year's base salary commenced yesterday – after the Corporations Amendment (Improving Accountability on Termination Payments) Act received Royal Assent.
Increased awareness of the golden handshake provisions is likely to lead to more scrutiny of termination/retirement arrangements – so it is important that existing and future arrangements are reviewed to ensure compliance with the new laws.
Our previous Alerts dated 5 May 2009 and 14 September 2009 explained in detail how the new golden handshake provisions will apply – however, in brief terms:
- they prohibit the giving of benefits to certain senior executives and directors in connection with their retirement from office (or employment) unless shareholders approve the benefits or they fall within one of a very limited number of exemptions
- even if an exemption applies, shareholder approval will still be required for retirement benefits that exceed the relevant cap
- where the new provisions apply, the relevant cap is reduced to only one year's base salary. Where the old arrangements continue to apply, the cap is up to seven times a person's annual remuneration (depending on their circumstances).
The new provisions (and the one year base salary cap) apply to retirement from an office or employment held under an:
- agreement made
- agreement renewed or extended
- agreement, a condition of which is varied,
on or after Tuesday 24 November 2009.
Benefits received that contravene the new provisions are held on trust by the recipient and must be immediately repaid. This applies to the whole payment or benefit, not just to the amount in excess of the one year base salary cap.
Implications for employers
- Before making any changes to employment contracts, including changes to remuneration, consider what impact this could have on current termination/retirement arrangements (e.g. shareholder approval may become necessary where that was not previously the case).
- Payments in lieu of notice and accelerated or automatic vesting of share based payments on termination/retirement will generally require shareholder approval.
- Because of the way the legislation (and proposed regulations) are drafted, a range of other benefits (payments from superannuation funds being foremost) will probably require shareholder approval.
- Benefits received that contravene the new provisions must be immediately repaid by the recipient - this applies to the whole payment, not just to the amount above the one year base salary cap.
- Significant penalties can be imposed against both the employer and the recipient for breach of the legislation.