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 Public Governance, Performance and Accountability Rule 2014 (PGPA Rule) does not specify where executive remuneration policies and practices must be located in the annual report. However, the better practice is to place it with the Schedule 3 remuneration information, so readers can easily understand a Commonwealth company's executive remuneration policy and how it is applied. The information should be readily identifiable, including through clear use of headings to assist a reader in finding and understanding the reported information.
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.
Governance arrangements
Commonwealth Companies must explain who is responsible for making and approving decisions about KMP remuneration.
The annual report should clearly show:
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 arrangement and amounts
If benchmarking is used, information on how the benchmarking is used and who conducted the benchmarking.
In most companies, the Board approves KMP remuneration and the overall remuneration framework. The Board may be supported by a committee that reviews remuneration and provides recommendations. These arrangements should be clearly explained in the annual report.
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
Remuneration information should enable readers to understand:
the different remuneration arrangements in place for different categories of KMPs
the portion of remuneration that is fixed
the portion of remuneration that is 'at risk', such as bonuses or other short term incentive programs, and the conditions that apply to this component.
If any policies or practices apply to setting KMP remuneration, such as a Remuneration Tribunal Determination, the annual report should explain this.
Policy on performance bonuses
The Australian Public Service Commission provides guidance on the principles governing performance bonus use in Commonwealth entities and companies.
This guidance requires Commonwealth entities and companies to report their executive remuneration policy and practices, including the:
- governance arrangements under which those policies and practices operate;
- and basis on which their remuneration has been determined, including information about their decision-making around awarding bonuses.
To assist you in applying the principles, Performance Bonus Guidance is available on the Australian Public Service Commission website.
