Home' Executive Employment Contracts : Issue 1 Contents 11
An executive’s working hours in accordance with the relevant legislation
should be specified in the employment contract, even though executives will
often work longer hours. If they aren’t, this may impact on the calculation of
the executive’s entitlements (including their leave entitlements).
The term should, for example, provide that the executive’s hours of work are
such hours as are reasonably necessary for the executive to perform all of
their duties and functions with the requisite level of attention and skill.
In addition, the contract should reflect that the remuneration under the
contract has been calculated to adequately compensate the executive for
any “reasonable additional hours” they may work.
remuneration and other benefits
The employment contract should contain a term specifying the components
of the executive’s remuneration package.
The components that make up the executive’s remuneration package will
include salary and superannuation, and may also include benefits such as
bonuses or incentives (including in the form of employee share options or
schemes), the provision of a mobile phone or company vehicle and other
incidental forms of remuneration (such as salary sacrifice).
To avoid any uncertainty or potential disputes about remuneration, the
following matters should be included in the applicable terms:
► any key performance indicators or formulae used to determine the
quantum of remuneration to be paid;
► the incidence of payment (ie. weekly, monthly or fortnightly);
► how payment is to be made;
► whether certain payments (ie. bonuses, incentives, commission) are
discretionary or obligatory;
► when and how performance reviews, which link to salary increases, are
► what the superannuable salary is or how superannuation is calculated.
When determining remuneration and other benefits, it is also important to
be aware of the executive’s rights under the Fair Work Act, any applicable
award or enterprise agreement, relevant internal policies and other relevant
legislation (such as the Corporations Act, which is discussed in more detail
It is unlikely that there will be an applicable award or enterprise agreement in
most cases, but there are some industries where industrial instruments cover
executives (including banking, finance, higher education and in the public
As it’s a financial benefit, an executive’s remuneration may also be subject to
shareholder approval under the Corporations Act.
The Corporations Act may not require shareholder approval where the
remuneration to be provided to the executive employed by a public
company (or an entity that controls/is controlled by the public company or
is controlled by an entity that controls the public company) is reasonable,
given the circumstances of the employing company and the executive. It
is recommended that external independent remuneration benchmarking
and data can be sought when considering this requirement, and that the
company appropriately documents these considerations.
An executive’s remuneration may also extend to entitlements to participate
in employee share schemes and/or option schemes, particularly for listed
entities. These incentives are subject to specific regulation under the
Corporations Act (including disclosure obligations about employee share
schemes and options). You should seek expert advice before implementing
these forms of remuneration.
We note that conditional relief has recently been provided for employers
(either a listed or unlisted company) so that they are no longer required to
comply with the disclosure and licensing provisions of the Corporations Act
for offers of shares or interests in a scheme if the employee scheme is an
“eligible product” and is given to an “eligible participant”. The change was
instigated to remove the burden on employers where financial products
are made available and to promote an ongoing relationship between the
employer and employee. Employers are therefore able to further incentivise
good relations with an executive through, for example, an employee share
scheme as a performance bonus or as part of the executive’s remuneration.
There are other considerations arising from the Corporations Act, which we
look at in more detail below.
Given the complexity of executive remuneration structures, you should
consult an independent expert in remuneration and benefits about:
► the level of remuneration to be paid to the executive under the
employment contract, having regard to the position and market
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