The following information outlines the general requirements of the Public Governance, Performance and Accountability Rule 2014 (PGPA Rule) applicable to the reporting of the financial remuneration information for key management personnel (KMP), senior executives and other highly paid staff (OHPS) in annual reports. It assists in calculating reportable elements and provides structure and format requirements.
Executive remuneration must be reported in accordance with the disclosure tables at Schedule 3 of the PGPA Rule. The tables list all required elements for each reporting category (KMP, senior executives and OHPS).
Executive remuneration financial information:
Disaggregated remuneration information for each individual that was a KMP during the reporting period
Average remuneration information by band for senior executives during the reporting period
Average remuneration information by threshold band for OHPS during the reporting period.
Disclosure of executive remuneration on an accrual basis
The executive remuneration information must be calculated on an accrual basis (subsection 17CE(1) of the PGPA Rule).
As all remuneration amounts must be calculated on an accrual basis, there will be differences between the total remuneration amount disclosed in the executive remuneration disclosure in the annual report and the amount included on an individual’s annual payment summary, which is prepared on a cash basis. Some of these differences will also relate to the inclusion of certain benefits in the executive remuneration disclosure, and the omission of deployment-related allowances from the disclosures.
It is important that the entity’s annual reporting team coordinates the executive remuneration information from both the Human Resources and Chief Financial Officer areas to ensure information is consistent with the accrual basis requirements.
Accrual basis versus cash payment reporting examples
Two examples of differences between reporting on an accrual basis and cash payments are the payment of bonuses and termination payments.
Where a decision is made to pay a person a bonus for a particular period but the bonus is not paid in that reporting period, the bonus would not be included in the person’s annual payment summary for that period. However, despite not being paid, the bonus would still need to be recognised in the calculation of a person’s total remuneration for the relevant reporting period in which the decision was made. It will also be recorded as an obligation in the financial statements.
Some entities may also include in their financial statements an estimate of the total bonuses expected to be paid in respect of a reporting period even though decisions about the amounts to be paid to particular individuals have not been made at the time of the preparation of the statements. In these circumstances no bonus payments will be included in the remuneration disclosures but a note should be included to explain the approach adopted.
The approach followed for bonus payments should also be followed for termination payments. That is, where a decision is made in the reporting period to pay an employee a termination payment, the amount should be included in calculating the employee’s total remuneration whether or not the payment was made in the reporting period.
The amounts presented in the executive remuneration disclosure tables for persons remunerated under Remuneration Tribunal Determinations may differ to the amounts disclosed in the determinations for its bands. Differences may relate to the timing of when the official commenced or the inclusion of accrual information, as the Remuneration Tribunal determines remuneration and allowances on a cash basis. When this occurs, entities should include a note in their remuneration disclosures to explain the difference between the remuneration determined by the Remuneration Tribunal and that reported in their annual report.
Exemption of deployment from executive remuneration
Total remuneration (section 4 of the PGPA Rule) does not include any allowance paid because a person is deployed (but not posted) overseas. Overseas deployment should be viewed in a military context and as such persons identified as being deployed overseas should be limited to those involved in military type operations such as Australian Defence Force personnel and sworn officers of the Australian Federal Police.
Elements of executive remuneration
The executive remuneration information must be included in annual reports in accordance with the disclosure tables set out in Schedule 3 of the PGPA Rule. These tables require the disclosure of total remuneration for the current reporting period in the following 4 main categories and sub-categories:
Total remuneration is the sum of the following (calculated on an accrual basis): base salary, bonuses, other benefits and allowances, superannuation contributions (made by the employer), long service leave, other long term benefits and termination benefits.
The treatment of particular types of benefits is outlined below. For more details refer to Treatment of common remuneration items available under Tools and templates.
Annual leave
Annual leave should not be separately disclosed in the tables. The amount is included in calculating ’Short-term benefits’ as a component of ’Base salary’. The accrued annual leave expense should equal the annual leave paid out plus the movement in the annual leave provision.
For example, an official has an opening annual leave balance of 5 weeks, accrues 4 weeks annual leave during the financial year and is paid 6 weeks annual leave, the amount included in ‘Base salary’ for annual leave would equal 4 weeks (6 weeks annual leave taken less the 2 week movement in the annual leave provision). The annual leave movement should include any amounts calculated in accordance with the accrual methodology outlined in AASB 119 Employee Benefits (AASB 119).
At the start of the year, an official had 5 weeks of annual leave.
During the year:
- the official earned 4 weeks of leave, and
- took 6 weeks of annual leave, which were paid.
By the end of the year, the official therefore had 3 weeks of leave remaining.
Although the official was paid for 6 weeks of annual leave, not all of this pay relates to work done in the current year.
Two of those weeks came from leave that had been earned in earlier years.
For reporting purposes, only the leave earned during the year is counted as this year’s salary. As a result, 4 weeks of annual leave are included in the reported base salary for the year.
Long service leave
The amount disclosed for long service leave in ’Other long-term benefits’ should be treated consistent with other long-term employee benefits. The calculation of the movement in the long service leave provision should be on an accrual basis and include movements to reflect the present value of the liability (AASB 119).
For example, an official has an opening long service leave balance of 15 days, accrues 9 days long service leave during the financial year and is paid 7 days for long service leave taken, the ending balance of 17 days must be discounted to the present value at the end of the financial year. This takes into account the probability of the official reaching an unconditional entitlement for long service leave. Entities can either use an actuarial assessment or the shorthand method outlined in RMG-125 Commonwealth Entities Financial Statements.
Where the movement in the long service leave provision, after discounting to present value, is negative, entities may wish to include a footnote explaining the movements.
At the start of the year, an official had 15 days of long service leave.
During the year:
- the official earned a further 9 days of long service leave, and
- took 7 days of long service leave, which were paid.
By the end of the year, the official therefore had 17 days of long service leave remaining.
Because long service leave is usually taken many years after it is earned, the value of the remaining leave must be adjusted to today’s value for reporting purposes. This adjustment takes into account:
- how long it is expected to be before the leave is taken, and
- the likelihood that the official will meet the service requirements needed to access the leave, and
- expected future salary levels
The value of the 17‑day balance is therefore measured as the present value at the end of the financial year. Entities may calculate this amount using either:
- an actuarial assessment, or
- the simplified method set out in the Commonwealth Entities Financial Statements Guide (RMG‑125).
Overseas housing benefits and allowances
In view of the potential for total remuneration to be distorted by the inclusion of overseas housing benefits and allowances in the subcategory ‘Other benefits and allowances’, entities have the discretion to separately disclose these benefits and allowances.
Termination benefits
Termination benefits are employee benefits payable as a result of either:
- an entity’s decision to terminate an employee’s employment before the normal retirement date, or
- an employee’s decision to accept voluntary redundancy in exchange for those benefits.
Annual leave and long service leave paid out on termination is excluded from the total remuneration amount as the associated leave entitlement has previously been reported.
Notes to provide additional information
Exception from calculation in accordance with AASB
All executive remuneration is to be calculated and disclosed in accordance with AASB 119 with the exception of superannuation and certain benefits and allowances.
Superannuation is to be measured as follows:
- individuals in an accumulation superannuation scheme (for example, PSSap and super choice) – superannuation includes employer superannuation contribution amounts typically located on payslips of individuals (noting this needs to be reported on an accrual basis); and
- individuals in a defined benefits superannuation scheme (for example, PSS and CSS) – superannuation includes the relevant Notional Employer Contributions and the Employer Productivity Superannuation Contribution (also known as the Productivity Component).
For the PSS and CSS, the standardised notional employer contribution rates are to be used for the calculation of notional employer contributions. Finance advises entities of the standardised rates from time to time via Estimates Memoranda.
Where the value attributed to superannuation contributions made by the employer in respect to CSS, PSS, PSSap and military superannuation schemes (DFRDB and MSBS) is established in a Remuneration Tribunal Determination, this value should be used for determining employer contributions.
Any additional lump sum superannuation contributions for the PSS and CSS that are paid by an entity should not be included in calculating an employee’s total remuneration as these payments are not payments that are made for the benefit of individual employees.
Other benefits and allowances would include benefits that form part of the individual’s remuneration package.
Common examples of benefits and allowances include: car parking and motor vehicle benefits; housing benefits; and health benefits. These should be reported as the taxable/nominal value of the benefits provided during the financial year.
Please refer to Treatment of common remuneration items and Examples of remuneration disclosure tables, available under Tools and templates, for guidance on where to present these benefits in the Executive Remuneration disclosures.
Note: the military-related deployment allowances are not to be included in the total remuneration of an official.
Housing benefits may take a variety of forms. For example, lease costs may be paid directly by an employee and reimbursed by the entity or may be paid by an entity on behalf of an employee. An employee may also be provided with accommodation at no cost or at a cost that is subsidised by the entity. In all cases, the value of the housing benefit to the employee should be included in the calculation of a person’s total remuneration.
Note – FBT is to be calculated separately from the value of the benefit/allowance provided to the KMP/senior executive/OHPS, as this is an additional cost to the entity associated with the individual’s remuneration. Not every benefit/allowance may be a reportable fringe benefit.
Where a benefit (including salary sacrifice arrangements) results in a reportable fringe benefit amount (RFBA) for the employee, the Total Remuneration should include the taxable value and the FBT paid.
Where the benefit does not result in a RFBA for the employee, the Total Remuneration should only include the taxable value of the benefit.
By way of example:
- where an employee salary packages a motor vehicle and the benefit is included as a RFBA on their income statement, and the salary packaging arrangement requires the entity to pay FBT to the ATO, the employee’s Total Remuneration should include the taxable value of the benefit plus the FBT payable by the entity.
- where an employee receives a car parking benefit and it is not included as an RFBA on their income statement, the employee’s Total Remuneration should only include the taxable value of the benefit.
For information on FBT and electric vehicles, please see the ATO’s website on Electric cars exemption. Entities should report the taxable value including the notional taxable value of the benefits provided plus the FBT payable (where applicable).
Policy and practice reporting location
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 2). Entities remuneration policy and practice should also be included in the List of requirements under ‘Information about executive remuneration’ and link to the policy and practice location within the annual report.
Format for the body of the annual report
Executive remuneration disclosures must be in accordance with the tables in Schedule 3: Information about executive remuneration (PGPA Rule).
When preparing the executive remuneration for Schedule 3, Commonwealth entities should adopt the following practices:
Columns
- Do not delete columns or modify column headings, even when there is no information to report.
Table rows (Key management personnel only)
- Report each Key management personnel on a separate row.
Remuneration bands (Senior executives and/or Other highly paid staff only)
- If your entity pays no remuneration to Senior executives and/or Other highly paid staff, the relevant table(s) should not be included. A note should be included to explain the reason why there is no disclosure of the relevant table(s) e.g. ‘Our entity has no other highly paid staff’.
- Your entity is only required to report against the ‘Total remuneration bands’ where your entity has renumeration to report.
- The figures within the ‘Total remuneration bands’ column must not be modified or combined.
Figures
- Enter figures according to your entity’s style/preferences
- for example, $235,673 or ‘235,673’.
No data to report in a cell
- Report according to your entity’s style/preferences
- for example, zero ‘0’, dash ‘-’, or ‘$0’.
Notes and footnotes
- Notes and footnotes may be used to provide additional information and explanations e.g. to report acting or part-time arrangements.
No previous reporting periods required
- Comparative information from previous reporting periods is not required to be reported in an entity’s annual report. Entities are only required to report executive remuneration for the current reporting period.
