This document is part of the Victorian Public Entity executive employment resource.

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 (Remuneration Tribunal), which has been established to determine remuneration bands for public sector executives and associated guidelines.
  • Until such time as the Remuneration Tribunal has made determinations or issued guidelines, employers must continue to follow current requirements for setting executive remuneration in line with Public Entity Executive Remuneration Policy (PEER 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.

4.1 Responsibility for remuneration in the public sector

The roles of VPSC, DPC and the Remuneration Tribunal are set out in Section 1.5 Roles and responsibilities. The Remuneration Tribunal has responsibility to establish remuneration bands for prescribed public entities. The Remuneration Tribunal may also issue guidelines on the placement of executives within the bands.
Until such time as the Remuneration Tribunal has made determinations or issued guidelines, employers must continue to follow current requirements for setting executive remuneration in line with Public Entity Executive Remuneration Policy (PEER Policy)Until such time as the Remuneration Tribunal processes have been fully established public entities should continue to follow the current processes outlined on the OPSER website consistent with the PEER Policy. When available, remuneration bands and guidelines issued by the Remuneration Tribunal will take precedence over information provided in the Handbook.
If you are unsure if your entity is subject to the PEER Policy, the Remuneration Tribunal publishes a list of entities that are required to comply on their website.

4.2 Public Entity Executive Remuneration Policy

Remuneration of executives in the public sector is governed by the PEER Policy. OPSER is responsible for overseeing decision making about public sector executive remuneration. The PEER Policy stipulates that the following principles are to guide public entity boards in preparing submission for OPSERthe Remuneration Tribunal:

Principle 1: Executive remuneration should be fair and reasonable

Executives in public entities should receive fair and reasonable recompense for performing their public duties.

Principle 2: Executive remuneration should consider organisational performance as well as Victorian fiscal and economic conditions

Executive remuneration decisions should have regard to the financial performance of the entity. Decisions should also consider the fiscal and economic conditions of the state, reflected in the Victorian Government’s Wages Policy, as updated from time to time.

Principle 3: Executive remuneration should be competitive

Remuneration should be set at a competitive level for the relevant market and sector, so as to attract and retain talented people.

Principle 4: Executive remuneration should reflect the non financial benefits of public sector employment

Remuneration should not be the overriding factor in attracting and retaining executives, in recognition of the fact that there are a variety of non‐financial benefits of public sector employment.

Principle 5: Executive remuneration arrangements should be consistent and understandable to both executives and the general public

The methodology underpinning remuneration decisions should be robust and based on rigorous analysis of all of the relevant factors. The principles should be considered when recruiting for each executive role individually rather than applying a generic approach to all executive positions in the public entity. For example, competitive remuneration to attract one role may be different to another, as some roles are generalist and can be recruited from both private and public sectors. Others may be more unique with specialist expertise only available in certain industry sectors.

Performance incentive payments (bonuses)

The PEER Policy has been updated to reflect the Premier’s decision to abolish the use of bonuses for executives in public entities. Further information on the phasing out of bonuses is available from the Victorian Independent Remuneration Tribunal.

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?

Premier’s annual remuneration adjustment

Employers may choose to increase an executive’s TRP by the Remuneration Tribunal’s annual adjustment, which occurs on 1 July. The annual adjustment to TRP 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.
Under the PEER Policy a public entity must make a submission to the Remuneration Tribunal for any proposed adjustment to a CEO’s TRP that is greater than the annual adjustment.
The employer has discretion in determining whether to apply the annual adjustment. Employers may wish to consider a range of factors, including:
  • CPI
  • wages policy
  • financial context and performance of the entity
  • performance of the executive
  • if the executive has been recently appointed or has recently had an ad hoc remuneration review
  • executive remuneration reviews.

Remuneration reviews

The Standard Contract provides that the executive’s remuneration will be reviewed annually. The remuneration review for individual executives is conducted in the context of the outcome of the Premier’s annual remuneration adjustment (see above) but should also take into account sustained performance evidence of the executive’s application of key competencies, and retention factors.
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 this review does not guarantee any increase to any element of the executive’s remuneration.
Any increases or other change 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) shall be notified to the executive in writing. Boards are still subject to the PEER Policy in relation to ad hoc reviews.
An executive may request in writing at any time to re-structure base salary and any employment benefits for consideration by the employer. Should the employer agree to this request, such a re-structure shall only apply prospectively, and must include a superannuation component at least equivalent to the minimum superannuation contribution required by the employer to avoid a charge under the Superannuation Guarantee (Administration) Act 1992 (Cth) (although note that special requirements may arise for an executive who is a member of a statutory superannuation scheme where superannuation contribution obligations arise through the relevant legislation).

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.