The following information outlines the requirements of the 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 entity 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 required to calculate the total remuneration for this category.
Disclosure of executive remuneration on an accrual basis
The executive remuneration information must be calculated on an accrual basis (PGPA Rule, s.17CE(1)).
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 HR and CFO 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 Tribunal for its bans. Differences may relate to the timing of when the official started 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 four main categories and sub-categories:
The treatment of particular types of benefits is outlined below. For more details refer to Appendix 1: Treatment of common remuneration items available under Tools and templates.
Annual leave payments should not be separately disclosed in the tables. These payments should be included in calculating ’Short-term benefits’ as a component of ’Base salary’. The amount of annual leave should equal the number of weeks’ salary paid while working plus the annual leave paid and the movement in the annual leave provision. For example, an official has an opening annual leave balance of five weeks, accrues four weeks annual leave during the financial year and is paid six weeks annual leave, the amount included in ‘Base salary’ for annual leave would equal four weeks (six weeks annual leave taken less the two 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).
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.
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 in the manner set out at Appendix 2 available under Tools and templates.
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
Example of footnote use
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 (e.g. 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).
- individuals in a defined benefits superannuation scheme (e.g. 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
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 Appendices 1 and 2, 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.
Fringe benefits tax (FBT)
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 Australian Taxation Office, 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 PGPA Rule does not specify where executive remuneration (policy and practices or financial information) should be reported in an entity’s annual report. However, all required executive remuneration information need to be readily identifiable. Preferably, the executive remuneration policy and practices would be grouped together with the financial information (Schedule 3 tables). Entities are encouraged to make a clear use of headings to assist a reader in finding and understanding of 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 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 and the Digital Annual Reporting Tool
The reporting requirements are the same between the body of the annual report and in Digital Annual Reporting Tool data template, however format requirements may offer some flexibility in the body of the annual report (as described below). The overarching requirement is that the information reported in the body of the annual report is exactly the same as in the digital version, with all data templates completed and the use of the correct bands.
- Modification of the reporting table: Executive remuneration disclosures must be in accordance with the tables at Schedule 3: Information about executive remuneration (PGPA Rule).
- Digital Annual Reporting Tool - No modification: Digital Annual Reporting Tool data templates are prepopulated with the current reporting period threshold bands, and are to be used exactly as set in the reporting platform. Table columns should not be deleted, even when there is no information to report. For example, many entities do not pay bonuses or termination benefits, but to assist with the consistency of reporting, the bonuses and termination benefits columns should be included in the tables reported in the annual report.
- Body of the annual report - Allows modification: when reporting in body of annual report, entities may use a copy of the Digital Annual Reporting Tool data templates or customise it to improve presentation. For example, if there are remuneration bands that do not contain remuneration details of officials, that row may be removed from the respective tables. For example, an entity may not have any senior executives in the $245,001 - $270,000 remuneration band and therefore may remove this band row from the senior executives table.
- No changes to remuneration bands: Total remuneration bands must not be varied or combined even when there is a small number of employees in a particular band.
- When to exclude the entire table: If an entity pays no remuneration to one of the two categories of officials (senior executives and other highly paid staff, entities always report KMP), the relevant table(s) should not be included in the remuneration disclosures in the body of the annual report. A note should be included to explain the reason why there is no disclosure of the relevant table(s). However, all tables need to be completed in the Digital Annual Reporting Tool data templates, even if an entity pays no remuneration in that category.
- Value for each cell: Where there is no data to report enter ‘0’ for each cell (Excel based table allows for a convenient drag and fill).
- Use whole dollar format: When entering the figures, use whole dollar formatting for thousands, for example report $235,673 with no spaces between numbers.
- Providing notes:
- Digital Annual Reporting Tool - no notes to be reported in the Digital Annual Reporting Tool data templates.
- Body of the annual report - notes may be used in the body of annual report to provide additional information and explanation to assist the reader to understand what has been included in the tables.
- No previous reporting periods required: For the purpose of the executive remuneration disclosures, comparative information from previous reporting periods is not required to be reported in an entity’s annual report.