Share-Based Remuneration and Termination Payments to Company Directors : What are the Rules?

Part 2D.2 of the Corporations Act 2001 (Cth) regulates the making of termination payments to company directors, with the aim of limiting or preventing companies from giving golden parachutes. Termination payments are prohibited unless they have shareholder approval, or they fall within prescribed limits. The authors' analysis suggests that the provisions are not able to deal adequately with the widespread practice of share-based remuneration. Companies must disclose the expense incurred when making a payment, but the gain to the recipient of share-based remuneration is likely to be far greater, and to fall outside the statutory regime. Moreover, the observed practice of some companies in seeking shareholder approval for such payments suggests both that the proper application of the provisions is unclear, and that they do not require disclosure of sufficiently clear information. The authors conclude by considering ways in which the provisions might be adjusted to address these issues.This is a companion article to 'Seven: the Corporations Act, corporate governance and termination payments to senior employees' by Kym Sheehan and Colin Fenwick