4. Remuneration

Summary

The Victorian Independent Remuneration Tribunal (the Remuneration Tribunal) determines executive remuneration bands for public service executives and has issued guidelines on the placement of executives within remuneration bands.

The executive employment contract provides that a review of individual executive remuneration is undertaken annually.

Each employer must establish an Executive Remuneration Committee.

Employers must report executive employment details annually to the Victorian Public Sector Commission (VPSC) in the form and detail advised at the time.

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 VPS Executive Classification Framework.

The VPS Executive remuneration bands are determined by the Remuneration Tribunal and apply to all VPS executives. The Remuneration Tribunal has also issued guidelines to assist VPS employers in placing public service 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 VPS executives 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 Departmental Executive Remuneration Committee

Each department must 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.

4.2.1. Responsibilities of Departmental Executive Remuneration Committees

The specific role and responsibilities of an Executive Remuneration Committee are for each employer to determine. A suggested model is set out below.

The Executive Remuneration Committee’s 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 department 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 Department’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 the VPSC annually, details of executive employment in the agency in the form and format advised at the time;
• provide the VPSC with an aggregate agency report on the total cost of executive employment on an annual basis; and 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:

• The committee must have an independent external member– someone who can provide an unbiased external viewpoint.
• The VPSC maintains a whole-of-government database on executive remuneration. Reports are provided to the Government and the Victorian Secretaries Board. Therefore, accurate and timely information must be provided.

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. From 6 October 2022, an executive absent on paid or unpaid Primary Caregiver parental leave is also eligible to have any guideline rate issued during the first 52 weeks of their absence applied to their salary.

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 through the Department of Premier and Cabinet’s public service 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.

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 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 on the VPSC’s resources for VPS executives.