New legislation on executive pay could significantly hurt organisations’ ability to attract talent and get rid of poor performing staff according to an expert from legal firm Allens Arthur Robinson.
Paul Quinn, head of the corporate law department at Allens Arthur Robinson, said today that the new legislation, particularly its limits on executive termination payments, could see a decrease in management talent.
“It does put a significant limit on the way a company can attract new talent or make a payment to somebody to get rid of them,” he said during a Boardroom Radio interview.
“If you are trying to attract somebody and they realise that if they were sacked after a week, that they would only get a termination payment of one week’s pay, it may be a disincentive for people to move across.”
Quinn said the new legislation’s requirement that shareholder approval be required for termination payments of more than one year’s base salary had the potential to remove flexibility and choice from organisations’ contract negotiation process.
“Two years [base salary]could be the right view, but you do need flexibility to get the right balance and that varies from circumstance to circumstance,” he said.
“The aim of this [salary cap] is to prevent the excesses but to give flexibility to companies to do what they need to do to either recruit people or get rid of people.”
The proposed legislation was also likely to see debate around its potential effects on the negotiation of contract lengths, Quinn said.
“For example it was quite common to have fixed term contracts. . . but they will be difficult going forward,” he said. “People will want a bit more certainty than what is being provided in this legislation.”