NZ Shareholders Members Area

NZSA Policy Statements

Golden Parachute Policy

GOLDEN PARACHUTE POLICY.

Background:

Following publicity over the Minder Initiative in Switzerland, and new rules in other parts of the EU, the NZSA has reviewed its policy on upfront lump sum payments on the employment of senior executive staff, redundancy, bonuses paid on completion of a takeover or merger and retirement allowances for directors. This policy statement should be read in conjunction with the NZSA Executive Remuneration Policy.

Golden parachutes are defined as excessive severance payments to executives and directors, whether in cash, options, or shares. A similar term, Golden Handshakes is used to describe excessive signing on bonuses.
It is noted that directors have sometimes appeared to accept larger than normal termination payments to avoid extended legal action by the retiree. This can be easily avoided if the employment terms are clear at the outset, providing for regular performance reviews, and severance conditions. Publishing employment terms for senior executives is one of the best ways to ensure that due care and attention is paid to getting the details correct. This is common practise in jurisdictions that require detailed remuneration reports to form part of the Annual report to shareholders.

In 2004, largely after pressure from NZSA, NZX introduced rule 3.5.2 which says
that retirement allowances must be approved by shareholders and cannot be more than a year’s salary, calculated over any 3 years stipulated by directors.

NZSA supports the development of remuneration packages in which there is a substantial element of at risk, short and long term incentives, based on measurable performance hurdles for above average performance. This means that executives will usually have accrued benefits, payable on severance from their employer. The press does not often discriminate between such accruals and other discretionary payments and this can be misleading to investors. Where appropriate, NZSA make public commentary to clarify that payments should not be seen as “Golden Parachutes” or “Golden Handshakes” where this is not in fact the case.

The NZSA Position:

 

  1. That NZSA opposes payments made to executives on joining a company, because this reflects a failure to plan succession internally.
  2. That NZSA opposes special retirement allowances.
  3. That any redundancy payments be at no greater rate for executives or directors than those applying to other staff.
  4. That details of any special signing on or severance arrangements be clearly disclosed at the time a new senior executive is recruited.
  5. That Pension payments be the same percentage rate for all employees whether director or staff, (including the rate of both employer’s and employee contributions).
  6. NZSA opposes special payments to executives on the successful completion of a takeover or merger of their company regardless of whether these are paid by the target company or the purchasing company.


Voting discretionary Proxies

Where possible, the NZSA will vote against extraordinary additional remuneration packages that breach the guidelines and objectives of the policies outlined above.Where companies have consistently failed to observe these guidelines and the board concerned is unwilling to change its policy going forward, the NZSA will vote discretionary proxies against the re-election of directors standing at the next AGM of that company.