Leading Australian company director, Sir Rod Eddington, strongly criticised lofty termination payments last week, telling Fairfax that “senior executives getting large sums as they leave companies, where it’s seen as ‘payment for failure’ — it doesn’t just make shareholders angry, it makes staff angry.”
Eddington’s comments came after the Federal Government announced that it will amend the Corporations Act to require shareholder approval for any executive termination payments which exceed 12 months base salary.
Eddington, who was one of three members of the Allco board which approved of the disastrous related-party acquisition of Rubicon was completely correct in his analysis of termination payments. Eddington’s comments also represent the first public departure of a professional non-executive director from the standard line adopted by the Australian Institute of Company Directors and Australian Industry group.
In criticising such largesse, Eddington noted: “I didn’t get a golden goodbye. I would never have accepted one. I wouldn’t expect it to be in the contract. And my view is it’s nonsense, really. You don’t need to put it in there.”
One can’t help but wonder whether Sir Rod was quite so forthright in his views on termination payments in the News Corporation boardroom last month. Eddington has been a director of News Corp since 1999 (at that time, Eddington was slashing maintenance budgets at News Corp’s 50% owned subsidiary, Ansett, which would soon be sold to Air New Zealand and slip into insolvency).
Last month, News Corp announced that departing chief operating officer, Peter Chernin, would receive a termination payment of between US$29.6 million (AUD$45.6 million) and US$90.03 million (AUD$138.6 million). In addition, Chernin is contractually entitled a six-year motion picture agreement and a six-year television production agreement with News Corp which contains terms relating to guarantees, fees and compensation at least as favourable as the most favourable agreements entered into by the company since 2004.
On top of the golden handshake, Chernin has also received remuneration of more than US$147 million in the past five years. Chernin’s final employment contract, which contained his lucrative termination entitlements, was executed in 2004 — four years after Eddington became a director of the global media group.
Further, while Eddington didn’t receive a generous termination payment after his five years at British Airways, he didn’t exactly depart penniless. Despite BA underperforming the FTSE index and rival Qantas during Sir Rod’s tenure as CEO, Eddington still took home cash remuneration of £3.66 million (AUD$9.5 million), as well as more than 1.8 million BA options during his five-year stint.
While Eddington’s views are a welcome addition to the remuneration debate, as Peter Chernin’s golden goodbye proved, for shareholders, when it comes to executive payments, talk is cheap.