Legislative controls on director and executive termination payments in the UK and Australia – lessons for South Africa

Abstract

The awarding of termination payments to departing company directors and senior executives has attracted a lot of controversy in many jurisdictions in light of the excessive nature and size of termination packages, as well as the corporate governance flaws in the process by which these payments are determined. Termination payments are frequently perceived to be rewards for failure in view of the large packages that have been paid to company executives on termination of their service contracts, often following poor financial performance and staff retrenchments. This article examines the legislative controls on termination payments in the UK under the Companies Act 2006, and in Australia under the Corporations Act 2001. It then evaluates the position in South Africa under the Companies Act 71 of 2008 in light of the approaches followed by the UK and Australia. The article concludes that the provisions of the Companies Act 71 of 2008, relating to directors’ and executives’ termination payments are inadequate to promote transparency, accountability and certainty. It further makes proposals for more robust regulation of directors’-and executive-termination payments under the Companies Act 71 of 2008.