Golden handshakes are back?

Whatever happened to Australia’s focus on Egalitarian pay?

When we first entered the investment management industry in the early 2000’s, AGM season usually brought an onslaught of column inches on executive pay. Journalists spent effort analysing the remuneration structures. There were regular scandals around golden parachutes or golden handshakes: egregious sums of money paid to outgoing CEO’s who had often presided over poor company performance or job losses (or both).

This most recent reporting season, we saw a raft of separate voting resolutions specifically requesting shareholder approval for the giving of a termination benefit. We hadn’t recalled seeing quite so many of them, which prompted us to ask: have golden handshakes made a comeback?

A governance journey

Executive termination payments have long been a flashpoint in debates about corporate governance. At their core, these payments sit at the intersection of two competing ideas: the need to attract and retain talented executives, and the expectation that corporate leaders should be accountable to shareholders and the broader community. Over several decades, Australia’s regulatory framework has gradually evolved in an attempt to balance these tensions; rewarding appropriately but retaining some of our egalitarian approach to pay.

Understanding the legislative journey is essential to assessing today’s governance landscape. The rules governing termination payments did not emerge overnight; they are the product of changing corporate practices, public scrutiny, and regulatory intervention designed to ensure transparency and shareholder oversight.

Australia has regulated termination benefits in some form for decades. As early as the mid-1970s, company law required shareholder approval for certain retirement benefits paid to directors if they exceeded specified thresholds. Originally, approval was required where payments exceeded three times average annual remuneration, later increased to seven times average remuneration in 1981 (Treasury Post Implementation review 2013).

These thresholds reflected the corporate environment of the time. Higher inflation and evolving superannuation structures meant that executives were often compensated through deferred benefits, and legislators sought to set limits that still allowed companies flexibility to negotiate executive contracts. However, as executive remuneration grew rapidly through the late twentieth century, the seven-times threshold began to allow increasingly large payments to be made without direct shareholder scrutiny.

Termination payments themselves arise in several ways. Some are contractual, pre-agreed in employment contracts through “liquidated damages” clauses specifying the payout formula on termination. Others emerge through negotiation when an executive departs before a contract term ends or when rolling contracts are terminated early. In either case, termination benefits may include salary continuations, bonuses, accelerated equity vesting, or superannuation contributions.

The theoretical justification for these payments is not without merit. They can reward long service, encourage executives to take strategic risks, or maintain objectivity during takeover negotiations. But critics have long argued that such payments may simply become “rewards for failure”, particularly when executives receive substantial payouts despite poor company performance (Stapledon 2005).

Rising executive pay and Public Concern

Through the 1990s and early 2000s, executive remuneration in Australia increased significantly, driven by globalisation, larger corporate structures, and the rise of performance-based compensation schemes. The Productivity Commission later observed that CEO remuneration among large, listed companies had grown dramatically over this period, with total pay increasing sharply between the mid-1990s and the global financial crisis.

This broader growth in executive pay inevitably affected termination benefits. As base salaries and incentive payments rose, the statutory thresholds tied to remuneration allowed termination payouts to reach substantial levels. Studies of publicly reported payments between 1999 and 2004 found that termination benefits ranged from around $800,000 to almost $10 million, with an average payment of approximately $3.65 million (Treasury Post Implementation Review 2013).

Several high-profile cases amplified public scrutiny. Media coverage frequently highlighted executives leaving companies with multi-million-dollar packages despite poor corporate performance. These cases helped fuel a broader perception that boards were too willing to approve generous exit payments. The issue was not merely economic. It became a governance concern. As one parliamentary discussion noted, there was “significant community concern about the levels of termination benefits paid to company management.”

The first major modern reform came through the Corporate Law Economic Reform Program (CLERP) 9 reforms, introduced in 2004. These reforms strengthened disclosure requirements and introduced caps on termination payments unless shareholders approved them.

Under the amended provisions of the Corporations Act 2001, termination payments above certain thresholds required shareholder approval. Companies were also required to disclose detailed information about executive remuneration and termination arrangements in annual reports.

The policy rationale was straightforward: transparency and shareholder scrutiny would act as checks on excessive payments. Legislators believed that shareholders should have the opportunity to review and approve payments that were large relative to executive pay or company performance.

However, critics argued that the framework still permitted excessive payouts. Because shareholder approval was only required once payments exceeded seven times the executive’s annual remuneration, very large termination benefits could still be paid without a vote.

Global Financial Crisis and Renewed Reform Momentum

The global financial crisis of 2007–2009 fundamentally reshaped the debate around executive remuneration. Around the world, governments and regulators began examining how compensation structures (including termination payments) might encourage excessive risk-taking.

In Australia, the crisis sharpened public attention on executive pay practices. Policymakers noted that large termination benefits were sometimes paid even when companies performed poorly, reinforcing perceptions that executives were insulated from the consequences of failure.

The Australian Government responded by commissioning the Productivity Commission Inquiry into Executive Remuneration in Australia in 2009. The inquiry recognised that concerns about executive remuneration -particularly large payouts disconnected from performance – had become widespread among investors and the public.

At the same time, policymakers acknowledged the complexity of regulating executive pay. While excessive payments could undermine trust in corporate governance, overly rigid regulation risked limiting companies’ ability to recruit talented executives in competitive global markets.

The most significant change came later that year through the Corporations Amendment (Improving Accountability on Termination Payments) Act 2009. This reform dramatically tightened the regulatory framework.

Key changes included:

• Lowering the shareholder approval threshold from seven times annual remuneration to one year’s average base salary
• Expanding the scope of the rules beyond directors to include key management personnel
• Broadening the definition of termination benefits
• Strengthening penalties and requiring repayment of unauthorised payments.

The intention was clear: to ensure shareholders had a stronger voice in approving large termination payments and to align executive remuneration more closely with community expectations and governance standards.

The reforms reflected a broader shift in corporate governance thinking. Rather than attempting to cap executive pay directly, policymakers focused on increasing transparency and empowering shareholders to scrutinise remuneration practices.

Its now been 15 years – almost half a career length between these reforms and today’s practices. We would be unsurprised if there had been executive pay creep since then.

What are we seeing in the Longwave Portfolio

At the outset of this research, we had made an observation that we thought we’d seen an increase in the instances of companies seeking shareholder approval for potential termination benefits.

However, after analysing the AGM Notice of Meeting data on our portfolio holdings for the last 5 years, there isn’t a noticeable pattern.

Over the last 5 years, the number of stocks in our fund has ranged between 114 and 127. Of the portfolio holdings over these years, 88 mentioned termination benefits, discussion of section 200E or ASX listing rule 10.16 in their Notice of Meeting and Explanatory Memorandum.

We analysed these to understand the following:

• Whether the company was seeking shareholder approval to provide a termination benefit to management. This is effectively allowing management performance rights to vest or stay on foot in some way post-employment such that management are receiving a payment that exceeds 1 year salary.
• Whether this approval had been sought as a separate resolution or embedded in the Resolution for approval of performance rights.
• Whether there were any limitations to board discretion for termination payments such that egregious payments couldn’t be made to a retiring managing director.

Of our portfolio holdings, 14% sought approval for a termination benefit in 2025, this was actually down from the number in 2024.

Source: Bloomberg, company reports, Longwave

Source: Bloomberg, company reports, Longwave

Of the ones seeking approval for termination benefits, 47% had a separate resolution for approval. This was the highest on record in the last 5 years which is potentially why we thought we noticed a trend.

Source: Bloomberg, company reports, Longwave

In many cases, explanatory memorandums contained wording to the effect that the termination benefits had limited application (ie if an executive died, was made redundant or became incapacitated) and in many cases there was reference to pro-rata vesting. However, these very often also appeared to be overridden by the board retaining broad discretion to accelerate vesting or waive vesting conditions in circumstances where they see fit.

Conclusion

Although we found no interesting trend from the data we’ve analysed so far, this exercise alerted us to potentially being able to use this information as a red-flag for board capture by management. Read in conjunction with other aspects of governance or execution of strategy, it might be a useful tell for what’s really going on in boardrooms.

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Sources

Fenwick, C., & Sheehan, K. (2007). Share-based remuneration and termination payments to company directors: What are the rules?

Stapledon, G. (2005). Termination Benefits for Executives of Australian Companies, Sydney Law Review.

Australian Government Productivity Commission (2009). Executive Remuneration in Australia – Inquiry Report No. 49.

Parliament of Australia (2009). Chapter 2 – Discussion of Submissions: Termination Payments.

Australian Government Treasury (2013). Post-Implementation Review: Improving Accountability on Termination Payments.

Baker, D., & Denniss, R. (2010). Reining it in: Executive pay in Australia. The Australia Institute.

Voting Observations

In the year to 31st December 2025 we cast 653 ballots for 128 company AGM’s. Of those, 17% were AGAINST votes, but this hides the fact that we voted against at least one resolution in 40% of the AGM’s we voted on.

Many of these AGAINST votes (again) related to Remuneration practices (both Remuneration reports and Equity issuance to executives or board members).

Download the complete ESG Observations and CY2025 Proxy Voting Report