The Federal Treasurer yesterday announced long-awaited reforms aimed at curbing excessive “golden handshakes” — or termination payments, paid to company executives.

The new laws will require shareholder approval for any termination payment which exceeds 12 months base salary (currently, executives are able to receive a termination payment equal to seven times total remuneration without approval). The new laws will not actually restrict golden handshakes from being paid, but rather, will require approval from a majority of shareholders before the payment can be made.

While certainly an improvement, the proposed laws are not a complete solution — they do not to address the issue of CEOs receiving “termination payments” when they are not actually terminated, but rather, elect to retire. Similarly, the payment of ‘twelve months base pay’ is still far greater than what most employees would expect to receive in the event of redundancy or termination.

Despite the changes being roundly supported by Main Street, the executive classes, and their paid protectors have unsurprisingly criticized the moves. The Age today screamed, “Business Fury at Moves to Limit Payouts”, with CEO of the Australia Industry Group (and close adviser to Kevin Rudd), Heather Ridout, stating that, “Australian companies and the regulatory framework they operate under are not responsible for the current crisis … and they shouldn’t be overregulated in response to it.”

Ridout’s claims contradict recent occurrences, which have seen Oxiana’s Owen Hegarty walk away with a golden handshake of $8.35 million while the company he ran teeters on the edge of insolvency. Similarly, former Pacific Brands boss, Paul Moore, received more than $3 million after he retired last year. Neither payment required shareholder approval. Under the current laws, outgoing Telstra chief, Sol Trujillo, would be entitled to a termination payment of $77 million before shareholders approval would be required. Few, other than Ms Ridout, would describe curbing such potential excess as “overregulation”.

Long-time member of the director’s club, Dick Warburton, also attacked the proposed laws, dubbing the move “populist politics”. In fairness, Warburton knows more about golden handshakes than most. Warburton was a director at Southcorp when the wine maker paid former CEO, Tom Park, $10.1 million for a mere five months as CEO, including a $3 million severance payment. Park was effectively made redundant after Southcorp’s disastrous Rosemount acquisition.

John Colvin, CEO of the Australian Institute of Company Directors, also criticized the proposed change, telling the Financial Review that “Government’s aren’t the best people to set pay, and they’re not the best people to regulate the area.” Colvin, a former industrial relations lawyer appeared confused, given the proposed amendment to the Corporations Act does not involve the Government regulating or setting pay at all, but rather, provides shareholders with the option to reject payments which exceed a certain level.

In any event, governments would be hard pressed to do a worse job than existing company directors. It is those existing directors who paid Rupert Murdoch remuneration of $86 million over the past three years, during which time NewsCorp shares tumbled by almost 60 percent. Company directors also paid recently departed Macquarie chief, Alan Moss, more than $79 million since 2006. Over the period, Macquarie shareholders saw their investment fall by around 66 percent.

Warren Buffett put it best, when he stated in his 2005 Letter to shareholders:

Getting fired can produce a particularly bountiful payday for a CEO. Indeed, he can “earn” more in that single day, while cleaning out his desk, than an American worker earns in a lifetime of cleaning toilets. Forget the old maxim about nothing succeeding like success: Today, in the executive suite, the all too-prevalent rule is that nothing succeeds like failure.

It is this behavior which the proposed laws seek to change. The new laws simply act to give shareholders a say on golden handshakes. If a departing CEO creates enormous value for investors, like Michael Chaney at Wesfarmers or Roger Corbett at Woolworths, then shareholders are entitled to approve a generous termination payment. But when the likes of John Alexander, Owen Hegarty, Paul Anthony and Mike Tilley collect multi-million dollars payments while their company lies in ruins, governments must act to protect shareholders.