Report recommends remuneration transparency for Commonwealth Entities, plus a boost to Audit Committee pay
05/10/2018
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An independent review into the Public Governance, Accountability Act 2013 has recommended legislation be introduced mandating that Commonwealth entities disclose KMP remuneration on an individual basis.

The review was conducted by former Telstra CEO David Thodey and company director Elizabeth Alexander. They highlighted the disconnect between high community expectations of transparency around public resources and poor disclosure of executive remuneration. The disclosure required of ASX-listed companies is much more stringent than that required of Commonwealth entities.

“Disclosure of executive remuneration should be at least as important in the public sector, where high transparency standards are expected,” the review stated.

The review outlined the history of executive remuneration reporting in the public service.

Until 2013-2014, Commonwealth entities were required to report the remuneration of senior executives and highly paid staff (over $200,000) within bands of $25,000 in their annual financial statements.

In 2015 new legislation was introduced which aligned Commonwealth reporting with national accounting standards, however, only required disclosure of KMP in aggregate – that is remuneration was not reported separately for individuals.

Some entities disclosed remuneration on an individual basis voluntarily. The matter attracted public criticism in in 2016 when Australia Post chose not to do so, despite the former CEO having a significant remuneration package.

Acknowledging these criticisms, in February 2017, the Finance Minister wrote to all government business enterprises and the Future Fund Management Agency, asking them to disclose executive remuneration in the same way as listed companies. This was followed by a request from the Secretary of the department of the prime minister writing to portfolio secretaries asking for executive remuneration to be published for portfolio entities.

Not all entities complied with the requests.

Mr Thodey and Ms Alexander sought feedback from involved entities, finding many were frustrated by reporting changes, which had led to confusion as to how and where remuneration should be reported.  These entities asked for a “clear and consistent approach for everyone”. Other entities had concerns about publishing information at an identifiable level, citing privacy including cultural sensitivities. Such arguments were voiced before ASX-listed entities were required to report on an individual basis and also more recently in New Zealand for NZX listed company CEOs.

Mr Thodey and Ms Alexander found merit in consistency and did not appear to place much weight in privacy arguments:

“There is no reason to report Commonwealth 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 entities should be disclosed in entity annual reports to at least the same level of transparency that applies to Australian Securities Exchange listed companies.”

The review recommended that accountable authorities disclose executive remuneration in annual reports on an individual basis for KMPs (on an accrual basis in line with ASX companies). While the report does not specifically mention non-executive director remuneration, by definition, KMP includes non-executive directors.

Interestingly, disclosure would go beyond ASX listed company standards if the recommendations were implemented. This is due to an additional requirement to report senior executives and highly paid personnel who are not KMP, averaged and grouped into bands. Disclosure would be in line with reporting requirements that were in place to 2013-2014.

The remuneration policy and practice relating to KMPs, senior executives and other highly paid staff should also be disclosed. A template table was provided in the report.

The review also raised concerns at the effectiveness of audit committees, and suggested remuneration be adjusted in accord with raised expectations.

The independent review can be found HERE.

© Guerdon Associates 2021
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