4. Remuneration

Summary of mandatory requirements and responsibilities

Remuneration of public entity executives must comply with any determinations and guidelines issued by the Victorian Independent Remuneration Tribunal.
Public entity employers also must continue to comply with requirements of the Public Entity Executive Remuneration Policy.
Employers must report executive employment details annually to the VPSC in the form and detail advised at the time.
Employers must comply with the Financial Reporting Directions, issued under the Financial Management Act 1994, relating to reporting of executive salaries in annual reports.

What is considered remuneration?

The total remuneration for executives includes:

base salary (including any post-tax employee superannuation contributions or other post-tax deductibles);
employer superannuation contributions (compulsory employer contributions and pre-tax contributions directed by the executive);
employment beneﬁts (i.e. non-salary beneﬁts) – full cost of any beneﬁts is met by the executive; and
the annual cost to the Employer of providing the non-monetary benefits, including any fringe benefits tax payable.

4.1 Remuneration bands

Executive employment is structured in three work value levels described as bands. The work value of each of the bands is described in the Public Entity Executive Classification Framework.

The Victorian Independent Remuneration Tribunal (Remuneration Tribunal) determines the remuneration bands for executives employed in prescribed public entities. It has also issued guidelines to assist employers in placing executives within the bands.

4.1.1. Requirement to pay within the relevant band

Employers must ensure that executives are paid within their relevant band.

If an executive’s remuneration falls below the base of their relevant band following a Remuneration Tribunal Determination, the executive is entitled to have remuneration increased to the base of the new band. If this amount is less than the guideline rate for that year, the employer has discretion to increase the executive’s remuneration by the difference.

If an employer proposes to pay an executive above the maximum of the band, it must seek and consider the Remuneration Tribunal’s advice. This may occur with a new appointment, reappointment or as a result of a mid-contract remuneration adjustment. Further guidance on when to seek advice is through the Remuneration Tribunal.

4.1.2. Reviews of the remuneration bands

Under its establishing legislation, the Remuneration Tribunal must comprehensively review and determine remuneration bands for executives in prescribed public entities every four years. It must also make annual adjustment determinations to the values of those bands. The Remuneration Tribunal provides information on the remuneration bands currently in effect.

4.2 Public Entity Executive Remuneration (PEER) Policy

The Victorian Government PEER Policy details the Victorian Government’s approach to executive employment, classification and remuneration in public entities.

All public entities prescribed under the Victorian Independent Remuneration Tribunal and Improving Parliamentary Standards Regulations are required to comply with the PEER policy. This includes public entities who employ executives under Part 3 of the Public Administration Act 2004.

Further details on the scope, application and requirements of the PEER policy are available in the policy. For a copy of the current regulations, please visit Victorian Legislation.

What is considered remuneration?

The total remuneration for executives includes:

base salary (including any post-tax employee superannuation contributions or other post-tax deductibles)
employer superannuation contributions (compulsory employer contributions and pre-tax contributions directed by the executive)
employment beneﬁts (i.e. non-salary beneﬁts such as the cost of a motor vehicle to an employer but excluding general business expenses such as laptop computers, mobile phones, or study leave)
the annual cost to the employer of providing the non-monetary beneﬁts, including any fringe beneﬁts tax payable.

The most common non-salary employment benefit utilized by executives is a motor vehicle. Further guidance is available in Section 6.2. Employers should refer to the PEER Policy for further information on remuneration requirements and processes.

4.3 When is remuneration reviewed?

4.3.1 Annual remuneration adjustment guideline rate

The Premier determines an annual remuneration adjustment guideline rate for executives. This is known as the ‘guideline rate’.

Employers may increase an executive’s remuneration by an amount up to the guideline rate. This includes executives on secondments and higher duties arrangements.

The guideline rate applies from 1 July of the relevant year. The annual adjustment may be made at any time during the 12-month period to 30 June of the current year, but not backdated prior to 1 July of the previous year.

Employers may determine not to pass on the rate if the executive was appointed to the role within six months of the date the guideline rate takes effect, or if an executive has recently received a remuneration uplift.

The Premier’s guideline rate, along with supporting materials to guide implementation, is annually made available on the Department of Premier and Cabinet’s public entity executive employment advice.

4.3.2. Ad hoc remuneration reviews

The standard executive contract provides that at any time, an employer may agree to undertake an ad hoc remuneration review. This may be to acknowledge changes in responsibility, accountability or for retention purposes.

An employer agreeing to undertake an ad hoc remuneration review does not guarantee any increase to any element of the executive’s remuneration arrangements.

Prior to making any ad hoc remuneration adjustments, the employer must ensure a current work value assessment is undertaken to determine the role is appropriately classified. This is a strict requirement under paragraph 6.3 of the PEER policy.

If the ad hoc review results in an increase to base salary or employment benefits (including as a result of a change in the annual cost to the employer of providing the non-monetary benefits), the executive must be notified in writing.

If an executive’s responsibilities significantly change, the employer should also undertake a new work value assessment of the role. The outcome of the work value assessment will determine whether the role should be reclassified. Further guidance on completing a work value assessment is available through the VPSC.

4.4 Executive remuneration committee

Public entities are encouraged to establish an executive remuneration committee. The committee’s role is to ensure that a consistent and rigorous approach is taken to setting and adjusting executive remuneration. For smaller public entities it may be more appropriate for this role to be undertaken by the Board.

Responsibilities of the committee

The speciﬁc role and responsibilities of the committee are for each employer to determine. A suggested model is set out on page 18.
The executive remuneration committee responsibilities are to:
Provide a budget forecast of expenditure on executive salaries for each ﬁnancial year.
Provide a forecast of any changes to the executive proﬁle in the public entity and the challenges this will bring.
Monitor budget expenditure and report progress against the forecast on a six-monthly basis.
Review all proposals for remuneration levels and adjustments to assure transparency and fairness.
Ensure that the distribution of executive salaries is reported in the public entity’s annual report (for more details, refer to the current Financial Reporting Directions issued under the Financial Management Act 1994 which are published on the Department of Treasury and Finance website).
Report to VPSC annually, details of executive employment in the public entity in the form and format advised at the time.
Provide VPSC with an aggregate report on the total cost of executive employment for the public entity on an annual basis.
As required, ensure it has documented its methodology for determining work value, related benchmarks, reasons for any remuneration level, including changes in, and premium remuneration. These policies must stand up to review.

Note:

Public entities should consider including an independent external member– someone who can provide an unbiased external viewpoint.
VPSC maintains a Whole of Victorian Government database on executive remuneration. Reports are provided to the Government and the Victorian Secretaries Board. Therefore, accurate and timely information must be provided.