The Australian Accounting Standards Board (AASB) review was undertaken to understand international disclosure requirements that extend beyond disclosures of the total remuneration of key management personnel required under IAS 24 Related Party Disclosures (see HERE). Australian executive remuneration disclosure requirements were compared to eight overseas jurisdictions for for-profit (listed), not-for-profit (NFP) and public sector entities to provide further input into the public discussion on this topic.
The research shows that many similarities exist across the jurisdictions, as well as a number of significant differences in the breadth and depth of the information required to be disclosed. Only two jurisdictions (Australia and Germany) currently require the disclosed remuneration information to be audited and only two countries (Australia and South Africa) require the remuneration information presented outside financial statements to be measured in accordance with the relevant accounting standards. Four jurisdictions (New Zealand, the UK, South Africa and the US) had standardised requirements that applied to a broad group of NFPs, although to varying degrees of detail. In the case of the public sector, national level disclosures were identified in Australia, New Zealand, South Africa and the UK.
The research shows that Australia requires more detail in disclosures of listed entities. The AASB indicates that Australia has an opportunity to cut red tape and streamline disclosure requirements. It joins the chorus that has contributed to numerous inquiries and submissions over the years (see just two of several examples HERE, and HERE). It also shows that Australia is lagging in NFP disclosure requirements.
The analysis can be summarised as follows:
- Most disclosure requirements stem from company law or securities law. Hong Kong and Singapore have disclosure requirements rooted in their main board listing rules.
- Remuneration disclosures are found in the financial statements of Hong Kong and South Africa listed companies. The majority of disclosures are found in a separate filing document or the annual report i.e. in a section for the remuneration report, directors’ report or governance report.
- Only Australia and Germany require auditing of the remuneration report. In five jurisdictions (Australia, New Zealand, Hong Kong, Singapore and South Africa) where remuneration information is contained in the same document as the audited financial statements, the auditor is required to ensure consistency between the information and the financial statements. There are no audit requirements in Canada, New Zealand, Singapore and the US, while Hong Kong, South Africa and the UK only require audit of specific information.
- Remuneration policy is required to be discussed or disclosed in all jurisdictions. However, only four (Australia, Canada, Singapore and the US) require the discussion of the link between remuneration and performance.
- Three jurisdictions do not require the disclosure of performance conditions, including performance goals, targets or measures. In the remaining jurisdictions, this is required, with South Africa and the UK going further in requiring relative weightings of each performance measure, set targets and the corresponding value of the award achievable, and how KMP individually performed against these targets. Canada and the US will allow the omission of performance measures and targets if they are deemed, by the directors, to be commercially sensitive.
- Disclosure of non-executive director remuneration on an individual named basis is required in all jurisdictions. These requirements are also the same for executive directors, however, in the US and Canada, separate disclosure tables are required for directors and Named Executive Officers (effectively executive KMP). Singapore and Hong Kong require aggregate remuneration information for the top five KMPs who are not directors or the CEO.
- There is ambiguity in the calculation and measurement of remuneration in each of the jurisdictions in the study, except Australia. The ambiguity stems from the valuation of equity awards and the timing of their inclusion in remuneration amounts, pension benefits and other similar items when disclosure has to account for securities law and company law. There is an expectation in South Africa that remuneration is calculated in a consistent manner with the accounting standard, as the information is to be disclosed in the financial statements.
- Only Australia, Germany and the UK require disclosure of fixed and variable (at-risk) remuneration.
- There are varying levels of disclosure required for categories of remuneration i.e. salary, fees, bonuses, share-based awards, LTIs etc. Only Singapore and Germany do not provide specific guidance. Among those that do, Australia, the US and Canada are the most detailed in their requirements.
Not-for-profit (NFP) entities
- The research was unable to identify standardised requirements of disclosure for a broad group of NFPs in Canada, Germany, Hong Kong and Singapore.
- In Australia, large charities (with annual revenue of $3m or more) with two or more KMP may be required to disclose remuneration on an aggregated basis, beginning 1 July 2022.
- In New Zealand, a NFP must disclose each director’s total remuneration and the value of other benefits received.
- In South Africa, a NFP requiring an audit of its annual financial statements must disclose each director’s and prescribed officer’s total remuneration and pension amounts paid. These amounts are expected to be calculated in a manner consistent with the accounting standards.
- Disclosure in the US is perhaps the most revealing. A form filed with the Internal Revenue Service requires the compensation disclosure of current and former officers, directors, trustees, up to 20 key employees and the 5 highest paid employees.
- UK NFPs not constituted as companies and which have not adopted IFRS, FRS 101, FRS 105 must disclose KMP total compensation in the financial statements under FRS 102. Additional guidance is also provided to include remuneration of charities’ KMP, benchmarks and criteria used in pay setting.
- There is ongoing consideration given to whether there is a need to disclose distinct executive remuneration details, given the differences between the NFP and for profit sectors, in terms of agency and fiduciary relationships.
Public sector entities
- Standardised requirements applying to a broad group of public sector companies across a jurisdiction is not available.
- Australia requires the disclosure of KMP remuneration on an individual basis. Total remuneration is calculated on an accrual basis, similar to financial statements. Policy is also to be discussed. The disclosure is done to bring the reporting in line with ASX-listed entities.
- New Zealand requires all statutory entities and crown entities to disclose total remuneration of each member and committee member.
- South Africa requires national public entities to disclose total remuneration of board members, CEO, CFO, and senior management on an individual basis.
- The UK requires all entities consolidated within the Whole of Government Accounts to prepare an accountability report as part of an annual report. In this, each individual director’s and minister’s salary and allowances, performance pay, non cash benefits and pension benefits must be disclosed. The report must also discuss remuneration policy and the link between performance and remuneration.
See the paper on the AASB website HERE.© Guerdon Associates 2023 Back to all articles