The Parliament and the Australian public have a strong interest in the proper use and management of public resources, from which Commonwealth executive remuneration is paid.
All Commonwealth companies must report the policies and practices of the Commonwealth company regarding the remuneration of key management personnel (KMP), setting out:
- the governance arrangements under which the Commonwealth company’s remuneration policies and practices operate, and
- the basis on which the remuneration of KMP is determined.
Where should this reporting be located in an Annual Report?
The PGPA Rule does not specify where in their annual report Commonwealth companies must discuss their executive remuneration policies and practices. However, the better practice is for this information to be placed along with Schedule 3 remuneration information, assisting a reader to fully understand a Commonwealth company's executive remuneration policy, practices and application. The information should be readily identifiable, including through clear use of headings to assist a reader in finding and understanding the reported information.
The ‘list of requirements’ must provide details of the location of the information in the annual report that addresses each of the mandatory requirements specified by the PGPA Rule, including the reporting of executive remuneration information (PGPA Rule Schedule 2B). Commonwealth companies' remuneration policy and practices should also be included in the List of requirements under ‘Information about executive remuneration’ and link to the policy and practices location within the annual report.
Who should report their remuneration policies and practices?
The reporting requirements apply to all Commonwealth companies, but the content of the report will vary depending on the nature of the Commonwealth company and the instruments used to remunerate KMP. Therefore, the reporting undertaken should be fit for purpose.
The information below will assist in determining the minimum requirement for a Commonwealth company.
When disclosing executive remuneration policies and practices information, Commonwealth companies should note the following:
Governance arrangements under which policies and practices operate
Commonwealth companies must disclose the governance arrangements under which the remuneration policies and practices operate. The annual report should clearly identify:
- the overarching body or person responsible for setting remuneration, and its membership;
- any committees or management positions that have input into the setting and monitoring of the remuneration arrangements and amounts; and
- if benchmarking is used, information on how the benchmarking is used and who conducted the benchmarking.
Generally the Board is responsible for determining the remuneration policy and the remuneration structure for KMP. In practice, the Board is typically supported by a Remuneration Committee or other mechanism, which makes remuneration recommendations to the Board. These arrangements should be included in the disclosure.
How is remuneration determined?
The framework for determining remuneration is generally set out in policy documents of the Commonwealth company. This information should be disclosed, along with a summary of the policies.
The details of the person or committee that is responsible for approving and monitoring the application of each policy should be disclosed.
For some Commonwealth companies, there may be multiple instruments or policies, depending upon the employment instruments or arrangements for different individuals. For example, non-executive Board Members and Chief Executives may be remunerated under a Remuneration Tribunal Determination.
Policy on various remuneration components
In order to understand how KMP are remunerated, information on the remuneration components, including the portion of remuneration that is fixed compared to the portion of remuneration which is ‘at risk’ and subject to performance conditions, should be disclosed.
Commonwealth companies should also disclose details of any Remuneration Tribunal Determinations or government policies that the Commonwealth company must comply with in determining how remuneration is structured or set.
The remuneration disclosures could also include an explanation of how the remuneration policies and practices link to the achievement of the organisation’s strategy and objectives. In circumstances where there is an explicit link between remuneration and the Commonwealth company’s performance, this link should be explained.
Policy on performance bonuses
The Australian Public Service Commission has released guidance that outlines the principles governing performance bonus use in Commonwealth entities and companies. The principles are outlined below
- Commonwealth entities and companies exist to deliver outcomes for the public. Any performance bonuses must be carefully designed to clearly align with delivering a public benefit over and above expected outcomes.
- All Commonwealth entities and companies have a responsibility to the Australian public and therefore should act in line with community expectations regarding remuneration, regardless of their level of independence from the Government.
- Commonwealth entities and companies should exercise rigour and restraint in the use of performance bonus payments.
- Performance bonuses may only be used in limited circumstances, justifiable to the Parliament and the public.
To assist you in applying the principles, Performance Bonus Guidance is available on the Australian Public Service Commission website.