EXPLANATORY STATEMENT

Issued by the Authority of the Minister for Finance and the Public Service

Public Governance, Performance and Accountability Rule 2014

Public Governance, Performance and Accountability Amendment

(Reporting Executive Remuneration) Rules 2019

The Public Governance, Performance and Accountability Act 2013 (PGPA Act) and the Public Governance, Performance and Accountability Rule 2014 (PGPA Rule) set out a framework for regulating resource management by the Commonwealth entities and companies. Section 101 of the PGPA Act provides that the Finance Minister may make rules by legislative instrument to prescribe matters necessary or convenient to be prescribed for carrying out or giving effect to the Act.

Under subsection 33(3) of the Acts Interpretation Act 1901, where an Act confers a power to make, grant or issue any instrument of a legislative or administrative character (including rules, regulations or by-laws), the power shall be construed as including a power exercisable in the like manner and subject to the like conditions (if any) to repeal, rescind, revoke, amend, or vary any such instrument.

The Public Governance, Performance and Accountability Amendment (Reporting Executive Remuneration) Rules 2019 (the Amending Rule) amends the PGPA Rule to require Commonwealth entities and companies to disclose details of the remuneration of each of their key management personnel and the policies and practices that underpin remuneration in their annual reports. Commonwealth entities are also required to disclose details of the remuneration of their senior executives and other highly paid staff.

Under subsection 46(4) of the PGPA Act, the Joint Committee of Public Accounts and Audit (JCPAA) must approve the rules prescribing annual report requirements. The Amending Rule was approved by the JCPAA on 1 April 2019.

Details of the Amending Rule are set out at Attachment A.  A statement of compatibility with human rights is at Attachment B.

The Amending Rule is a legislative instrument for the purposes of the Legislative Instruments Act 2003 and is a disallowable instrument. 

Consultation

The Amending Rule was developed in consultation with all Commonwealth entities and companies. The Department of the Prime Minister and Cabinet, Australian Public Service Commission, the Office of Parliamentary Counsel and the Australian Government Solicitor advised on elements of the Amending Rule.

The Independent Review into the operation of the PGPA Act and Rule (the Review) recommended that accountable authorities of Commonwealth entities disclose the executive remuneration of each of their key management personnel, senior executives and other highly paid staff in their annual reports. The review sought submissions broadly, including from the public, Commonwealth entities and companies.

Attachment A

Details of the Public Governance, Performance and Accountability Amendment (Reporting Executive Remuneration) Rules 2019

Section 1—Name of rule

This section provides that the title of the instrument is the Public Governance, Performance and Accountability Amendment (Reporting Executive Remuneration) Rules 2019
(the Amending Rule).

Section 2—Commencement

This section provides that each provision of the instrument specified in column 1 of the table commences, or is taken to have commenced, in accordance with column 2 of the table.

The entire instrument commences on the day after the Amending Rule is registered.

Section 3—Authority

This section states that the Amending Rule is made under the Public Governance, Performance and Accountability Act 2013 (PGPA Act).

Section 4—Schedules

This section provides that each legislative instrument that is specified in a Schedule to the Amending Rule is amended or repealed as set out, and that any item in a Schedule to this instrument operates or is applied as specified in the Schedule.

Schedule 1 – Amendments

Public Governance, Performance and Accountability Rule 2014

Item 1 – Section 4

This item inserts definitions for key management personnel, other highly paid staff, senior executives, threshold remuneration amount, total remuneration and total remuneration band in section 4 of the PGPA Rule.

Item 2 – At the end of Division 2 of Part 1-1

This item adds section 4A ‘Meaning of threshold remuneration amount’ to the end of Division 2 of Part 1-1 of the PGPA Rule. The purpose of this section is to define the term threshold remuneration amount inserted by item 1 of this rule to section 4 of the PGPA Rule.

The threshold remuneration amount applies the minimum total remuneration amount for ‘other highly paid staff’. Those ‘other highly paid staff’ whose total remuneration amount exceeds this threshold will have their remuneration details disclosed. To ensure that the threshold rises with wages growth over time, an indexation factor, calculated using the Wage Price Index (WPI), will be applied to the threshold remuneration amount for reporting periods that begin on or after 1 July 2019.

For a reporting period that begins in a financial year that begins on or after 29 June 2018 and ends on or before 30 June 2019, the threshold remuneration amount is $220,000.

For reporting periods that begin in a financial year that begins on or after 1 July 2019, the threshold remuneration amount is calculated using the formula provided at subsection 4A(1), rounded to the nearest multiple of $5,000. For those reporting periods, the threshold remuneration amount is calculated as the product of the threshold remuneration amount for the reporting period that begins on or after 29 June 2018 and ends on or before 30 June 2019 ($220,000) and the indexation factor for the current financial year. The indexation factor is calculated using the WPI numbers for the ‘reference’ and ‘base’ June quarters. The index numbers for the June quarters are published by the Australian Statistician.

The ‘reference June quarter’ means the June quarter before the financial year. The ‘base June quarter’ means the June quarter ending on 30 June 2018. For example, for a reporting period that begins on or after 1 July 2019, the relevant ‘reference June quarter’ is the June quarter ending 30 June 2019, and the relevant ‘base June quarter’ is the June quarter ending 30 June 2018.

The intent of section 4A is to ensure the indexation factor reflects the movement in the Wage Price Index from the June quarter ending on 30 June 2018. The remuneration amount calculated will then be rounded to the nearest $5,000 for reporting purposes.

In administering the rule, the Finance Minister will calculate the threshold remuneration amount for the reporting periods that begin in a financial year that begins on or after 1 July 2019.

Item 3 – After paragraph 17AD(d)

This item inserts an additional requirement for non-corporate Commonwealth entities to include information about executive remuneration in their annual report. Section 17AD of the PGPA Rule provides the mandatory content requirements for non-corporate Commonwealth entities’ annual reports.

Item 4 – After paragraph 17BE(t)

This item inserts an additional requirement for corporate Commonwealth entities to include information about executive remuneration in their annual reports. Section 17BE of the PGPA Rule provides the mandatory content requirements for corporate Commonwealth entities’ annual reports.

Item 5 – At the end of Division 3A of Part 2‑3

Item 5 inserts a new Subdivision C – Information about executive remuneration at the end of Division 3A. The subdivision establishes the mandatory content requirements for
non-corporate and corporate Commonwealth entities to report information about executive remuneration.

Section 17CA Information about remuneration for key management personnel

Subsection 17CA(1) establishes the requirements for the reporting of executive remuneration information of key management personnel within a Commonwealth entity’s annual report.

Subsection 17CA(2) provides that, for each Commonwealth entity’s key management personnel, the following information must be included in its annual report for the reporting period:

• name;
• position title;
• base salary;
• bonuses;
• other benefits and allowances;
• superannuation contributions;
• long service leave;
• other long-term benefits;
• termination benefits; and
• total remuneration, which must be the sum of the amounts included for paragraphs 17CA(2)(c) to 17CA(2)(i).

Subsection 17CA(3) provides that the information prescribed in subsection 17CA(2) must be included in a Commonwealth entity’s annual report in the form set out in clause 1 of Schedule 3 to the Amending Rule.

Section 17CB  Information about remuneration for senior executives

Subsection 17CB(1) establishes the requirements for the reporting of executive remuneration information of senior executives within a Commonwealth entity’s annual report.

Subsection 17CB(2) provides that, for a Commonwealth entity’s senior executives, the following information must be included in its annual report for the reporting period:

• the total remuneration bands (as defined in subsection 17CB(3)) for the senior executives;
• for the senior executives within each band;
  •  the number of senior executives;
  •  average base salary;
  •  average bonuses;
  • average other benefits and allowances;
  •  average superannuation contributions;
  • average long service leave;
  • average other long-term benefits;
  •  average termination benefits; and
  •  average total remuneration, which must be the sum of the amounts included for subparagraphs 17CB(2)(b)(ii) to 17CB(2)(b)(viii).

Subsection 17CB(3) defines the ‘total remuneration band’ for senior executives. The total remuneration bands consist of:

• where the total remuneration for a member of the entity’s senior executives is less than $220,000, the band $0 to $220,000; or
• if the total remuneration for a member of the entity’s senior executives is more than $220,000, the band of one or more increments of $25,000 above $220,000 into which the remuneration falls.
  

Subsection 17CB(4) provides that the information prescribed in 17CB(2) must be included in a Commonwealth entity’s annual report in the form set out in clause 2 of Schedule 3 to the Amending Rule.

Section 17CC  Information about remuneration for other highly paid staff

Subsection 17CC(1) provides that section 17CC establishes the requirements for the reporting of executive remuneration information of other highly paid staff within a Commonwealth entity’s annual report.

Subsection 17CC(2) provides that, for a Commonwealth entity’s other highly paid staff, the following information must be included in its annual report for the reporting period:

• the total remuneration bands (as defined in subsection 17CC(3)) for the other highly paid staff;
• for the other highly paid staff within each band;
  •  the number of other highly paid staff;
  •  average base salary;
  •  average bonuses;
  • average other benefits and allowances;
  •  average superannuation contributions;
  • average long service leave;
  • average other long-term benefits;
  •  average termination benefits; and
  •  average total remuneration, which must be the sum of the amounts included for subparagraphs 17CC(2)(b)(ii) to 17CC(2)(b)(viii).

Subsection 17CC(3) defines the ‘total remuneration band’ for other highly paid staff as the band of one or more increments of $25,000 above $220,000 into which the total remuneration for a member of the Commonwealth entity’s other highly paid staff falls.

The explanatory note to subsection 17CC(3) notes that other highly paid staff have total remuneration in excess of the threshold remuneration amount, which is indexed. This ensures that the threshold remuneration amount for other highly paid staff increases over time to reflect wages growth.

Subsection 17CC(4) provides that the information prescribed in subsection 17CB(2) must be included in a Commonwealth entity’s annual report in the form set out in clause 3 of Schedule 3 to the Amending Rule.

Section 17CD  Other information about executive remuneration

Subsection 17CD(1) provides that section 17CD establishes the requirements for the reporting of other information about executive remuneration within a Commonwealth entity’s annual report.

Subsection 17CD(2) requires a Commonwealth entity to include its policies and practices regarding the remuneration of key management personnel, senior executives and other highly paid staff, including:

• the governance arrangements under which those policies and practices operate; and
• the basis on which the remuneration of the key management personnel, senior executives and other highly paid staff has been determined.

Section 17CE  General rules for reporting information about executive remuneration

Amounts must be calculated on an accrual basis

Subsection 17CE(1) provides that the executive remuneration information prescribed in sections 17CA to 17CD must be calculated on an accrual basis – that is, calculated when remuneration amounts are incurred, rather than when payments are made.

Exemptions

Subsection 17CE(2) provides that the Finance Minister may, by legislative instrument, exempt the entity from one or more of the requirements prescribed in sections 17CA to 17CC of the Amending Rule.

Subsection 17CE(3) provides that the Finance Minister may require the information to which the exemption applies to be given to a person or body specified in the exemption.

Subsection 17CE(4) provides that a Commonwealth entity that receives an exemption from the Finance Minister under subsection 17CE(2) of the Amending Rule must note that exemption in their annual report, as well as any requirement to give the information to a person or body specified in the exemption.

Item 6 – After paragraph 28E(o)

This item inserts an additional requirement for Commonwealth companies to include information about executive remuneration in their annual reports. Section 28E of the PGPA Rule provides the mandatory content requirements for Commonwealth companies’ annual reports.

Item 7 – After section 28E

Item 7 establishes the requirements for the reporting of executive remuneration information of key management personnel within a Commonwealth company’s annual report.

Section 28EA  Information about executive remuneration—key management personnel

Subsection 28EA(1) provides that section 28EA establishes the requirements for the reporting of executive remuneration information of key management personnel within a Commonwealth company’s annual report.

Subsection 28EA(2) provides that, for each of a Commonwealth company’s key management personnel, the following information must be included in its annual report for the reporting period:

• name;
• position title;
• base salary;
• bonuses;
• other benefits and allowances;
• superannuation contributions;
• long service leave;
• other long-term benefits;
• termination benefits; and
• total remuneration, which must be the sum of the amounts included for paragraphs 28EA(2)(c) to 28EA(2)(i).

Subsection 28EA(3) provides that the information prescribed in subsection 28EA(2) must be included in an entity’s annual report in the form set out in clause 1 of Schedule 3 to the Amending Rule.

Subsection 28EB  Other information about executive remuneration

Subsection 28EB(1) provides that section 28EB establishes the requirements for the reporting of other information about executive remuneration within a Commonwealth company’s annual report.

Subsection 28EB(2) requires a Commonwealth company to include its policies and practices regarding the remuneration of key management personnel, including:

• the governance arrangements under which those policies and practices operate; and
• the basis on which the remuneration of the key management personnel has been determined.

Subsection 28EC  General rules for reporting information about executive remuneration

Amounts must be calculated on an accrual basis

Subsection 28EC(1) provides that the executive remuneration information prescribed in sections 28EA and 28EB of the Amending Rule must be calculated on an accrual basis – that is, calculated when remuneration amounts are incurred, rather than when payments are made.

Exemptions

Subsection 28EC(2) provides that the Finance Minister may, by legislative instrument, exempt the company from one or more requirements of section 28EA.

Subsection 28EC(3) provides that the Finance Minister may require the information to which the exemption applies to be given to a person or body specified in the exemption.  A person or body includes, but is not to be limited to, a Minister or Parliamentary Committee.

Subsection 28EC(4) provides that a Commonwealth company that receives an exemption from the Finance Minister under subsection 28EC(2) must note that exemption in their annual report, as well as any requirement to give the information to a person or body specified in the exemption.

Item 8 – At the end of Chapter 4

This item inserts section 30A “Publishing annual reports” at the end of Chapter 4.

Section 30A provides that if the annual report of a Commonwealth entity or company is tabled in a House of the Parliament, the entity or company must publish the report on its website as soon as practicable after the annual report is tabled.

Item 9 – In the appropriate position in Chapter 5

Item 9 inserts a new part “Part 4—Amendments made by the Public Governance, Performance and Accountability Amendment (Reporting Executive Remuneration) Rules 2019” at the end of Chapter 5.

Section 34 Application of amendments made by the Public Governance, Performance and Accountability Amendment (Reporting Executive Remuneration) Rules 2019

Section 34 provides that the amendments made by the Public Governance, Performance and Accountability Amendment (Reporting Executive Remuneration) Rules 2019 apply to reporting periods that begin on or after 29 June 2018. In general, this means for those Commonwealth entities or companies that report on a financial year basis, the first reporting period will be 2018-19 and those that report on a calendar year basis, the first reporting period will be 2019. It also accommodates the first reporting period for Snowy Hydro Limited as a Commonwealth company, which covers the period 29 June 2018 to 30 June 2019.

Item 10 – Clause 1 of Schedule 2 (after table item dealing with PGPA Rule Reference 17AD(e))

Item 10 inserts executive remuneration in the list of requirements to be included in a non-corporate Commonwealth entity’s annual report for the reporting period.

Item 11 – At the end of the instrument

Item 10 inserts “Schedule 3—Information about executive remuneration” at the end of the PGPA Rule.

Schedule 3—Information about executive remuneration

Schedule 3 sets out the table formats that must be followed by Commonwealth entities and companies when disclosing executive remuneration information in their annual reports.

Clause 1 sets out the table format for Commonwealth entities and companies to follow in relation to information about remuneration for key management personnel, in accordance with subsections 17CA(3) and 28EA(3).

Clause 2 sets out the table format for Commonwealth entities to follow in relation to information about remuneration for senior executives, in accordance with subsection 17CB(4).

Clause 3 sets out the table format for Commonwealth entities to follow in relation to information about remuneration for other highly paid staff, in accordance with subsection 17CC(4).

Attachment B

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Public Governance, Performance and Accountability Amendment (Reporting Executive Remuneration) Rules 2019

The Public Governance, Performance and Accountability Amendment (Reporting Executive Remuneration) Rules 2019 (the Amending Rule) is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview of the Amending Rule

The Public Governance, Performance and Accountability Act 2013 (PGPA Act) establishes a framework for regulating resource management by the Commonwealth and relevant entities. Section 101 of the PGPA Act provides that the Finance Minister may make rules by legislative instrument to prescribe matters giving effect to the Act.

The Amending Rule amends the annual report requirements in the Public Governance, Performance and Accountability Rule 2014 (PGPA Rule) made under the PGPA Act, to require Commonwealth entities to disclose executive remuneration in line with Recommendation 35 of the Independent Review into the operation of the Public Governance, Performance and Accountability Act 2013 and Rule (PGPA Review), which provides:

Accountable authorities should disclose executive remuneration in annual reports on the following basis, as shown in Appendix C to this report:

(a)   the individual remuneration (including allowances and bonuses) of accountable authorities and their key management personnel on an accrual basis, in line with the disclosure by Australian Securities Exchange listed companies; and

(b)   the number and average remuneration (including allowances and bonuses) of all other senior executives and highly paid staff, by band and on an accrual basis, broadly consistent with the reporting arrangements in place up to 2013–14.

The Amending Rule requires the annual reports of all Commonwealth entities to include, from 2018–19 onwards, the following information regarding remuneration:

a)      for each of their key management personnel, each person’s name, position title, base salary, bonuses, other benefits and allowances, superannuation contributions, long service leave, other long-term benefits, termination benefits and total remuneration;

b)     for senior executives and other highly paid staff,[1] aggregated data reporting total remuneration bands showing the number of staff receiving total remuneration in each band, and the average amounts for each of the categories of remuneration reported individually for key management personnel; and

c)      the policies and practices regarding the remuneration of key management personnel, senior executives and other highly paid staff, including:

1. the governance arrangements under which those policies and practices operate; and
2. the basis on which the remuneration has been determined.

For Commonwealth companies, the Amending Rule requires annual reports to include, from 2018–19 onwards, the requirements of a) and c) in the preceding paragraph. This is broadly consistent with the requirements of Australian Securities Exchange listed companies under the Corporations Act 2001.

Key management personnel are ‘those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly…’
(as defined by reference to Australian Accounting Standard AASB 124 Related Party Disclosures).

The information that the Amending Rule requires to be reported in relation to key management personnel is broadly equivalent to the information required to be reported by Australian Securities Exchange listed companies under section 300A of the
Corporations Act 2001 (see regulation 2M.3.03 of the Corporations Regulations 2001). 

Human rights implications

The Amending Rule engages the right to privacy as contained in Article 17 of the International Covenant on Civil and Political Rights (the ICCPR). Article 17 provides that no one shall be subjected to arbitrary or unlawful interference with his or her privacy, family, home or correspondence. The right to privacy is not absolute. However, limitations on the right must be authorised by law and must not be arbitrary.

The Amending Rule engages the right to privacy as it requires the publication, in Commonwealth entities’ and companies’ annual reports, of individual remuneration information (including the name, position title and remuneration details) of key management personnel, and, for Commonwealth entities, aggregated remuneration information for senior executive and other highly paid staff.

Authorised by law

To the extent that the right to privacy is limited by the reporting of individual remuneration information of key management personnel and aggregate information of senior executive and other highly paid staff, this is provided for in the Amending Rule and is therefore authorised by law.

Sections 17CA and 28EA set out the information about remuneration for key management personnel that must be published in the annual report of a Commonwealth entity or company. Commonwealth entities and companies are subject to the Privacy Act 1988 and any collection, use, or disclosure of personal information will be in accordance with that Act and the applicable Australian Privacy Principles. Furthermore, the ability of Commonwealth entities and companies to publish individual remuneration information of key management personnel is limited to the extent required by the Amending Rule.

Not arbitrary

Interference with privacy will be arbitrary where the relevant provisions of the Amending Rule are not in accordance with the provisions, aims and objectives of the ICCPR and are not ‘reasonable in the particular circumstances’.[2] The Human Rights Committee interprets the requirement of reasonableness to ‘imply that any interference with privacy must be proportional to the end sought and be necessary in the circumstances of any given case’.[3]

The purpose of the relevant provisions in the Amending Rule is to promote public transparency and scrutiny relating to the use of public resources through the disclosure of the remuneration of certain persons that are paid by Commonwealth entities and companies. The Amending Rule makes the employment and specific remuneration decisions of Commonwealth entities and companies in relation to key management personnel more transparent, ensuring that Commonwealth entities and companies are more accountable to the Parliament and the Australian public. Furthermore, it aligns the disclosure of Commonwealth public sector key management personnel remuneration with that of Australian Securities Exchange listed companies, ensuring that the Commonwealth continues to demonstrate the high standards of governance that the Parliament and public come to expect. This objective is legitimate and is in accordance with the provisions, aims and objectives of the ICCPR.

The interference permitted by the provisions is necessary in the circumstances because there is a strong interest from the Parliament and the public in ensuring there is sufficient transparency regarding the remuneration of key management personnel, senior executive and other highly paid staff of Commonwealth entities and companies. This public interest is detailed by the PGPA Review, which notes that:

‘The Parliament and citizens have a strong interest in the proper use and management of public resources, from which Commonwealth executive remuneration is funded. There are high expectations around the timely and adequate disclosure of executive remuneration by Australian Securities Exchange listed companies. The remuneration reporting requirements for these companies are established by the Corporations Act 2001. Disclosure of executive remuneration should be at least as important in the public sector, where high transparency standards are expected.’[4]

The PGPA Review also refers to the previous reporting requirements relating to key management personnel under the Public Governance, Performance and Accountability (Financial Reporting) Rule 2015, and extended to aggregate information, showing the total cost to the entity of remuneration of key management personnel, rather than being on an individual basis; and the voluntary arrangements for senior executive and other highly paid staff. The PGPA Review details the concerns raised about this approach, including by the Joint Committee of Public Accounts and Audit (see pages 48 and 49).

This reporting of remuneration information is also consistent with the objects of the
PGPA Act, which include establishing a coherent system of governance and accountability across Commonwealth entities. The objects require the Commonwealth, Commonwealth entities and companies to meet high standards of governance, performance and accountability. The objects also require the Commonwealth and Commonwealth entities to provide meaningful information to the Parliament and public, and to use and manage public resources properly. The revised explanatory statement to the PGPA Bill, which became the PGPA Act, noted, in relation to the general duties imposed on officials, that “[a]s a general principle, officials in the public sector should not be held to a lower standard of account than employees of publically listed companies. If anything, they should be held to a higher standard, given that taxpayers do not have a choice as to whether they are to be ‘shareholders’ of public sector entities”.[5]

The potential interference with privacy occasioned by the publication of remuneration information for key management personnel, senior executive and other highly paid staff in annual reports is also proportionate to the end sought, and could not be achieved in a less rights restrictive way.

In particular, the more detailed reporting of individual remuneration information is limited to key management personnel, who are those persons with authority and responsibility for planning, directing and controlling the activities of an entity or company. It is appropriate that there be transparency in relation to the remuneration of these persons. As previously noted, this level of transparency is broadly consistent with the current disclosure requirements of Australian Securities Exchange listed companies under the Corporations Act 2001. Only aggregated reporting is required for senior executive and other highly paid staff, which is a significantly lesser interference with privacy.

Less detailed reporting of this information would not be consistent with the principle that Commonwealth entities and companies should be held to high standards of accountability, as reflected in relevant recommendations of the PGPA Review, and would not fully address the concerns relating to transparency and accountability to the Parliament and the public discussed in the PGPA Review report.

Conclusion

The Amending Rule is compatible with human rights because to the extent that it may limit or restrict the right to privacy, those limitations are reasonable, necessary and proportionate to the objective of ensuring transparency and accountability in the use of public resources.

Senator the Hon Mathias Cormann

[1] Other highly paid staff are those earning over $220,000 which is subject to indexation as provided for in the legislative instrument.

[2] See Human Rights Committee, General Comment No. 16, at paragraph 4.

[3] See Toonen v. Australia (CCPR/C/50/D/488/1992), at paragraph 8.3.

[4] See page 48 of the PGPA Review.

[5] Public Governance, Performance and Accountability Bill 2013 Explanatory Memorandum, at paragraph 182.