Insurance giant IAG has urged the Federal Government to rethink its proposal to cap “golden handshake” payments or risk reducing the pool of qualified board members and executives.

In a submission on the Government’s draft bill restricting termination payments, IAG says amending the cap provisions will put pressure on companies to increase remuneration to attract and retain senior staff.

It would also make it difficult to fill managerial roles in its overseas subsidiaries, where severance payments for executives can be 15 times their base salary.

The Government plans to limit executive payouts to one year’s salary and anything above that would be subject to shareholder approval. The European Union is considering capping termination payments at two years’ salary.

“IAG is surprised that the Government has decided to proceed with the proposed amendments to the termination cap provisions before the Productivity Commission’s report on this and other key questions in relation to executive remuneration,” the insurer said.

IAG says the changes will increase base salaries at a direct cost to the company to compensate new employees for the risk of termination and loss of incentives or bonus payments, and undermine the effectiveness of Australian Prudential Regulation Authority prudential standards.