Why did Victoria axe executive bonuses?

By David Donaldson

Monday January 21, 2019

Key points:

  • Bonuses weren’t very effective at improving performance among public servants
  • The practice may have unintentionally deemphasised collaboration and long-term stewardship
  • Only public service organisations had executive bonuses axed, while other public sector entities did not

Until 2016, Victoria was unique among Australia’s jurisdictions in offering public service executives bonuses across the board.

The Andrews government decided to scrap bonuses — in exchange for a one-off pay increase of 4% — after a review by the Victorian Public Sector Commission found the practice was “ineffective in driving performance”.

The VPSC recommended abolishing bonuses, citing several factors:

  • Relatively low base pay for executive officers, which harmed competitiveness not only with the private sector, but also with non-executive VPS roles.
  • Their small size. Although executive contracts stated a payment of up to 17% was possible, on average executives were receiving 5% on top of their salary. “Bonus amounts are small as a proportion of total remuneration and thus have limited value in rewarding achievement,” said the commission.
  • Delays separating bonuses from their associated performance — payments were being made up to a year after the end of financial year to which they related.
  • Staff were more focused on other career motivations, such as professional development and opportunities to contribute to the Victorian community.

The review also found that, when combined with fixed-term contracting, bonuses “tend to support a focus on individual performance within the contract term, compared with collaborative achievement and longer term public service stewardship.”

In line with these findings the premier decided to end the practice, wrote Department of Premier and Cabinet Secretary Chris Eccles at the time bonuses were axed.

“The VPS Executive Officer (EO) cohort is critical to leading our public institutions and supporting the delivery of high quality services for Victorians,” he said.

“It is therefore important that employment arrangements for VPS EOs reflect best practice and enable EOs to continue the high quality work and leadership for which Victoria is renowned.”

Additionally, the decision followed media attention around senior bureaucrats receiving bonuses despite performance declining in certain areas, as The Age noted on the weekend.

Most other jurisdictions use performance reviews to determine whether performance warranted increasing pay or non-financial rewards such as professional development, the review noted.

Bonuses remain for executives at public sector entities, which includes statutory authorities and state-owned corporations.

READ MORE: Why we need to stop paying executives for performance

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