PGPA review draft seeks to draw back the veil on executive salaries

By Verona Burgess

June 6, 2018

It is not often that the banks can claim they have a superior regime of disclosure to that of the public service.

But when it comes to executive pay, they have it all over the federal bureaucracy.

That, it seems, is about to change.

Many public servants hate others knowing what they are paid and it seems the further up the taxpayer-funded tree they go, the more they feel entitled to hide it.

That is, until they reach the top when the Remuneration Tribunal, quite rightly, publishes the pay of department secretaries and other key officials.

It used to be possible – if you really cared – to take an informed guess at who was being paid an exceptional amount around SES3 (deputy secretary) level.

That was until several years ago when, even though individuals had never been named, agencies no longer even had to disaggregate their executives’ pay in the same way.

The draft report of the review of the Public Governance, Performance and Accountability Act 2013 and Rule proposes not only to reverse that change, but to go much further.

As reported, the joint chairs, David Thodey and Elizabeth Alexander, released their consultation draft on May 31.

Disclose individual pay, allowances and bonuses

Recommendation 34 wants annual reports to disclose individual pay, including allowances and bonuses, of key management personnel, in line with disclosures for ASX-listed companies; and also the number and average remuneration, including allowances and bonuses, of all other senior executives and highly paid staff by band, consistent with the pre- 2013-14 reporting requirements.

But wait, there’s more – recommendation 35 wants accountable authorities to explain their remuneration policy and practice in their annual reports, again consistent with ASX requirements.

Take the 2017 CBA annual report. The remuneration report (pages 64 to 82) not only explains the policy but lists the names and, in detail, the breakdown of pay, equity awards and other benefits not only of the board and chief executive but all 11 group directors.

CBA has some 52,000 employees; Westpac (39,000 employees, 11 group executives) does the same; ditto the Bendigo and Adelaide Bank (7200 staff, nine senior executives). In short, it is not about size.

Australian government entities and companies were, until 2013-14, required to report what they paid senior executives and other highly paid staff in their financial statements (but not by name) starting with total remuneration of $200,000, in bands of $25,000, listing the number of people in each band and their average remuneration.

The PGPA (Financial Reporting) Rule 2015 changed this requirement, aligning it with national accounting standards.

Entities, explained Thodey-Alexander, had to disclose remuneration in the financial statements in annual reports:

“This includes the number of key management personnel … and their total remuneration, broken down by shortterm employee benefits, postemployment benefits, other longterm employee benefits and termination benefits. However, this information is reported on an aggregate basis, showing the total cost … rather than on an individual basis.”

Again, senior names were not named.

This might have appealed to some but evidently not to the powerful Joint Committee of Public Accounts and Audit.

“There was considerable debate in early 2017 about the level of remuneration paid to the managing director of Australia Post. The JCPAA made known its view that the [rule] has reduced transparency of executive remuneration arrangements.”

Finance minister Mathias Cormann then wrote to all government business enterprises and the Future Fund Management Agency in February 2017, asking them to disclose executive remuneration in the same way as listed companies. They complied promptly.

In May 2017, the Secretary of the Department of the Prime Minister and Cabinet, Martin Parkinson, wrote to portfolio secretaries, asking them and their portfolio entities to publish information on executive remuneration on their websites voluntarily and consistent with the previous practice.

Only half did so by the deadline, leading to a joint request from Parkinson and Finance secretary Rosemary Huxtable.

But some didn’t do it: “There are still entities that have not complied,” says Thodey-Alexander.

Time has come to legislate

In its Report 463 on Commonwealth Financial Statements, the JCPAA decided the time had come to legislate.

“The JCPAA has made clear that disclosure of senior executive remuneration should be a formal requirement that is reflected in legislation, not optional by request,” says Thodey-Alexander.

The JCPAA also stipulated that the information should be published in annual reports, not just on agency websites.

“The vast majority of entities acknowledge the importance of transparency for Commonwealth executive remuneration arrangements and are comfortable with disclosing [them],” says Thodey-Alexander. “Only a small number of entities have a contrary view.”

Most had told them they felt frustrated by the changes, which had caused confusion. “They have asked for a clear and consistent approach for everyone.”

Some disagreed. They had concerns about publishing information at an identifiable level, citing privacy issues, but this view was not shared widely.

There was no reason to report executive remuneration arrangements in multiple formats and locations. “This hardly helps transparency and accountability. We believe that the remuneration of key management personnel in all Commonwealth entities and companies should be disclosed in entity annual reports to at least the same level of transparency that applies to ASX listed companies.”

These two recommendations might ruffle a few feathers – but it seems that the judge and jury have delivered their verdict. All that remains is the execution.

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