Company directors call for rethink on pay and bonuses

Just weeks after US President Barack Obama introduced a cap of $US500,000 for executives of companies that receive US Government assistance, the Australian Institute of Company Directors has released a new set of voluntary guidelines on executive pay, calling for a rethink on bonuses and termination payments.  

“The world has changed, and boards must address the problems that have merged in ways which better balance the interests of their companies and shareholders,” the AICD says in its report.

But a few of the guidelines are likely to cause controversy with some executives.

The AICD has suggested that boards consider an “upped bound” on the amount that can be paid in an incentive payment. This could be calculated as a percentage of base pay, as an absolute limit, and a diminishing percentage beyond a certain amount.

The AICD’s guidelines also suggest that a chief executive who has been sacked for misconduct should receive no pay, while chief executives sacked for other reasons should take home a maximum of 12 months pay.

Another suggestion is that boards hold some of a chief executive’s share payments until they leave a company in order to combat short-term thinking.

Above all, the AICD wants remuneration packages to be publicly defendable.

“Mistakes had been made which may have contributed to public concern about the size of executive salaries and termination payments, and fuelled calls for regulation and other restraints.”

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