G20 board releases bold plan on executive pay
By Peter Martin Economics Correspondant | smh.com.au | 26 September
Executive bonuses would be scaled back, reviewed yearly and unlinked from short-term share price movements under a bold plan presented to world leaders meeting in Pittsburgh.
Treasurer Wayne Swan backs the plan and said ahead of its release today that it displayed a "steely determination" to stamp out pay packages that rewarded excessive risk-taking and did not reward long-term value creation.
The 19-point plan was prepared by a Group of 20s' Financial Stability Board, with input from Australia.
Specific Australian proposals will be released on Wednesday when Productivity Commissioners Allan Fels, Robert Fitzgerald and Gary Banks unveil the preliminary findings of their six-month review of executive salaries.
The Financial Stability Board's proposals, which would apply only to the finance sector, would require at least 40 per cent of each executive's bonus to be deferred over a number of years, rising to 60 per cent for the bonuses of the most senior executives.
The deferral period should be at least three years with at least half paid in the form of shares or share-like instruments rather than cash.
Where cash is paid it should be handed over gradually, with unpaid portions "clawed back" when performance turns down.
No part of any bonus should be automatic except for new employees for whom an exception could be made in the first year.
Each firm would be required to review its entire system of executive payments each year and submit the results to authorities or disclose them publicly.
Existing contracts would be reopened and the termination provisions only kept if they did not "reward failure".
The draft principles are stronger than expected and may defuse an expected showdown between French president Nicolas Sarkozy, who wanted harsh caps on executive salaries, and other leaders who wanted a more hands-off approach.
The board has told the G20 leaders the draft principles are just the first step and that it will propose others in March.
Mr Swan said the rules would form an international framework for laws that each G20 member would have to draw up locally.
First published by Smh.com.au on September 26 2009
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