Category Archives: Regulatory Policy

Submission to Senate Inquiry: Quality of governance at Australian higher education providers

March 14, 2025 By in Education Policy, Regulatory Policy

Submission to the Australian Senate Inquiry into ‘Quality of governance at Australian higher education providers’
3 March 2025

The purpose of this submission is to flag an opportunity for improving university governance by addressing adverse agent/principal behaviour through the use of deferred compensation schemes. Specifically, to resolve the mismatch between remuneration received based on current observed performance and unobserved risky behaviour, or malpractice, which manifests at some point in the future.

Deferred Compensation Scheme
Banking industry has generated numerous high-profile cases where mismatches in timing between an employee’s earnings and the full consequence of their performance observed over long time frames. In response to this problem of governance, banks and regulatory bodies have implemented deferred compensation schemes. By deferring some of a bank employee’s compensation to a future date, an employee is motivated to ensure actions are aligned with the bank’s long-term viability and performance. Many deferred compensation plans include clawback provisions, allowing banks to reclaim payments if employees engage in misconduct or cause financial harm.

Deferred compensation schemes have regulatory precedent in Australia with Australian Prudential Regulation Authority’s (APRA) Prudential Standard ‘CPS511 Remuneration’.
The key requirements of the Remuneration standard are:

  • the Board of an APRA-regulated entity is responsible for the remuneration framework and its effective application, consistent with the size, business mix and complexity of the entity;
  • remuneration outcomes must be commensurate with performance and risk outcomes; and
  • higher standards must be met for key roles and certain large, complex entities.

https://www.apra.gov.au/sites/default/files/2021-08/Final%20Prudential%20Standard%20CPS%20511%20Remuneration%20-%20clean_0.pdf.

An APRA-regulated entity must defer variable remuneration as follows:

(a) for a Chief Executive Officer (CEO), at least 60 per cent of the CEO’s total variable remuneration must be deferred over a minimum deferral period of six years, vesting no faster than on a pro-rata basis and only after four years;

(b) for a senior manager and executive director other than a CEO, at least 40 per cent of that person’s total variable remuneration must be deferred over a minimum deferral period of five years, vesting no faster than on a pro-rata basis and only after four years.

A similar remuneration standard could be created to improve university governance.

Recommendation:

  • Vice Chancellors should have at least 40% of their total renumeration deferred;
  • University executive officers, including Deputy & Pro-Vice Chancellors, Deans, Chief Operating Officers, Chief Information Officer, and Chief Financial Officer, should have at least 20% of their total renumeration deferred;
  • 50% of deferred remuneration vesting after 5 years and the remaining 50% vesting after 10 years to reflect the unique long lag times in observing educational and organisational outcomes of universities;
  • That there be a national fund into which university deferred compensation is placed and administered.

Debt-free path to innovation

October 22, 2016 By in Innovation Economics, Regulatory Policy Tags: , ,

debt-free-path

Not-for-Debt (NfD) companies: A new exemption class for innovation start-ups.

There are already a number of different regulatory types of firms available, such as sole-trader, partnerships, private companies and public companies. However, a unique characteristic of start-ups firms is that they are more likely to fail than succeed. There is no company type available within the current regulatory framework that implicitly recognises this risk profile of start-up firms.

Malcolm Turnbull wants to reform corporate regulation – particularly to soften Australia’s rather punitive bankruptcy provisions – to create new start-up friendly business laws. The National Science and Innovation Agenda Report proposes to reduce bankruptcy from three years to one year, allow directors to trade while insolvent, and stop counterparties from terminating dealings with insolvent companies.

Corporate regulation was never designed or intended to promote new business growth, but rather to control existing and particularly large, mature businesses. For the most part, it does this successfully. However, Turnbull’s proposals fail to make a fundamental distinction between two very different types of firm failure. For start-up firms, particularly in the technology sector, a high failure rate is not only normal, it is often desirable. It’s a sign of experimental undertakings and rapid learning.

Changing the bankruptcy period from three years to one isn’t much of an incentive and won’t change reputational risk associated with the stigma of bankruptcy. Bankruptcy appears on credit reports for five years and remains on a public National Personal Insolvency Index for life. Although directors of insolvent firms are protected from liability for a company’s debt, the risk of significant penalties remain. Individuals can be barred for five years from directorships if they have been a director of more than two insolvent companies within seven years. Being a director of a company that trades while insolvent can lead to criminal penalties and potentially being liable for debts incurred while insolvent.

Applying the current bankruptcy and insolvency framework to innovation firm start-ups – where failure is treated as an exception – makes no sense. Continue reading →