The system of golden goodbyes where non-executive directors receive lump sums equivalent to up to 5 times their annual fees when they retire needs to be addressed straight away and Crikey will be leading the charge on this one. And go to the bottom of this story to see the growing list of company NED retirement schemes. If your company is not on the list you will get a free sub if you send the details through.
The system which delivers large balloon payments when a director retires based on the number of years served is just dreadful because it acts like a good behaviour bond and discourages directors from resigning over matters of principle.
Directors need to get all of their benefits on a paid-as-you-go monthly basis. This will mean we need a substantial increase in in annual fees to compensate for the phasing out of golden goodbyes.
Whilst companies and governments across the country appear to have closed most of the old generous defined benefit superannuation schemes for their employees, the directors and politicians themselves have hung onto them.
Each year numerous companies propose increases in fees for their boards but few people realise that this often leads to a knock-on blowout out in the superannuation liability that shareholders have to the board.
And most boards don’t even account for the superannuation payouts as they go.
With the help of the Australian Shareholders’ Association, Crikey would like to fire up some shareholder sponsored resolutions for later this year to abandon retirement payouts for directors.
It would be a very straight forward resolution where the existing scheme is closed forthwith and all liabilities are paid out to the directors at this time.
The board could then propose a compensatory increase in fees for future years and we would then start to see much more turnover in directors and the governance role being performed properly with more directors doing what Caroline Hewson did at AMP last year and resigning over a matter of principle.
Who can name the directors in Australia who have resigned over matters of principle. There was Michael Robinson’s departure from the Seven Network board in 1996 when he felt that Kerry Stokes was exercising too much control.
We’ve already mentioned Caroline Hewson but it is hard to come up with many more and that is one of the reasons our corporate performance is so woeful.
Can you believe that some companies are actually trying to exacerbate the problem by increasing retirnment lump sums to directors. Check out this extract from Crikey’s account of last year’s Southern Cross Broadcasting AGM.
SOUTHERN CROSS SNOUTS IN THE TROUGH
There was a major victory for shareholders because the Southern Cross board were mightily embarrassed by the withdrawal of the resolution boosting their retirement payouts.
So embarrassed in fact that this was the ASX announcement that went out at 5.51pm last Friday night:
“The Chairman of Southern Cross Broadcasting (Australia) Limited, Mr Geoffrey Crawford-Fish announced that the directors have decided that the business agenda item relating to increasing the Directors’ Retirement Allowances will not be moved as a resolution at the forthcoming Annual General Meeting.
In reviewing the situation, directors decided that in the current environment it was appropriate to consult further with shareholders and advisers.”
So there you have it. Rather than getting rolled by the proxies, they snuck out an announcement to the ASX when no-one would notice. Presumably the three largest shareholders, Deutsche Bank, Perpetual and the Commonwealth Bank had threatened to vote it down.
It really was one of the most scandalous snout in trough exercises I’ve seen for a while.
The remuneration committee comprises chairman Geoffrey Crawford-Fish and company founder John Dahlsen, both of whom are in their late 60s and approaching retirement.
The new retirement package would have seen these two old boys pick up a lump sums equivalent to 5-times their annual fees because they had both served more than eight years on the board.
Even worse was the proposal to increase the maximum payable to non-executive directors from $400,000 to $600,000, which got through relatively comfortably.
Chairman Crawford-Fish took over the reins in March 2000 and saw his annual fees soar from only $57,585 in 1999-2000 to $128,000 in 2000-2001, and presumably is now going to get another increase.
Based on the new retirement deal, he was nominating himself for a package worth $640,000 – and that’s assuming no increase now that the NED maximum has been lifted to $600,000.
WHICH COMPANIES HAVE WHAT SCHEMES
AMP: five times the final year’s fees so current chairman Stan Wallis is lining up a $1.5 million lump sum and former chairman Ian Burgess collected just over $1 million.
COMPUTERSHARE: To be congratulated for not having a retirement scheme. The maximum aggregate of NED fees is currently only $360,000 and this was approved in 2000. The chairman collected $115,500 last year, deputy chair $90,751 and the NEDs took home $68,715.
CSL: The maximum approved for NEDs is $1,000,000 and the last director who retired collected a lump sum of $246,000 but we’re still awaiting details of the scheme.
ENVESTRA: The maximum payable is $500,000 which was approved in 1999 and the chairman gets $90,000 whilst NEDs get $45,000 a year. The retirement scheme introduced when Boral spun off Envestra in 1997 provides a 3 year payout for more than 10 years service and pro-rata of this between 1 and 10 years.
GOODMAN FIELDER: the maximum NED fees of $750,000 was approved in 1989 and directors collected $614,687 in 2001 comprising cash of $353,118, Stat super $40,937 and shares (quarterly in arrears at market) of $220,632. These shares are restricted for 2 years (or retirement or takeover if earlier). The chairman collected $171,250 last year. Goodman Fielder have one of the most innovative albeit generous retirement schemes where they only get paid in shares (if only companies like PMP had the same). The formula is four times commencing fees divided by share price at commencement, equals number of shares to receive on retirement. Shares vest over 6 years, nothing unless three years service completed. This was approved in 1998 and since then Jon Petersen collected 285,818 shares on retiring in November last year and previously Mr Neilson got 153,239 shares when retiring in December 2000. These shares were part of a parcel acquired on market and held in trust for Directors’ retirement.
LEND LEASE: The current aggregate Directors’ fees is US$900,000 which was approved by shareholders at the 2000 AGM. The actual amount to be paid this year will be about US$700,000. The chairman will be paid US$200,000 this year and average fees for NEDs will be US$68,000. Lend Lease changed its excessively generous NEDs retirement scheme in 2000 but not before Max Sandow walked out with an $820,555 lump sum in 2000 and Peter Willcox collected $873,063. Former chairman Stuart Hornery was more deserving of his $922,435 lump sum and Lend Lease is to be commended for now accruing retirement benefits in shares.
NATIONAL AUSTRALIA BANK: Another with the overly generous 5 years payout which saw ousted chairman Mark Raynor walk away with a record $1.7 million last year.
PERPETUAL TRUSTEES: The fees cap of $900,000 was approved in 1990 and the chairman gets $165,000 whilst ordinary NEDs take but the board last year got an increase in retirement payouts when shareholders changed the 1972-approved scheme. This comprised of one year’s payout for each 3 years of service up to a maximum 5 year payout for 15 years service. Now 3 years gets 1.33 years payout, 6 years gets 2.67, 9 years gets 4, 12 years gets 4.5 and 15 years stays at 5 years. Crikey was very disappointed to see this as Perpetual is the best Australian institution on corporate governance but have moved to further entrench the amount of benefits paid to directors in golden goobyes based on years of service. However, at least they account for it as they go and include the accruing super fees in total emoluments so we know that chairman John Lamble got $235,362 last year and the other NEDs averaged about $135,000 which broadly comprised $50,000 cash, $40,000 in shares and $45,000 in super.
TEN NETWORK: One of the few companies not to have a scheme which probably reflects the tightness of controlling shareholder Canwest.
VILLAGE ROADSHOW: The maximum aggregate amount of director’s fees payable to NED’s is $800,000 per annum but only $435,315 was paid in 2001. The controlling Kirby family obviously run a tight ship because there is no retirement scheme for NEDs although the Kirby’s pay themselves more than $2 million most years and have pages worth of related party transactions.
WOODSIDE PETROLEUM: Chairman Charlie Goode was keen to stress at the recent AGM that Woodside only pays out 3 years in lump sums and this is pro-rata from 3 to 10 years.
WOOLWORTHS: Another with the 5 year payout and ousted chairman John Dahlsen helped himself to $1.2 million last year and then tried to introduce the same scheme at Southern Cross.
Any company which voluntarily sends in details of their scheme will be entitled to a free Crikey subscription so get on the email right away.