guidelines for tasmanian government businesses€¦ · guidelines for tasmanian government...

Department of Treasury and Finance

Guidelines for Tasmanian Government Businesses

Director and Executive

Remuneration

Created: April 2012

Last Revised: October 2015

Guideline for Tasmanian Government Businesses – Director and Executive Remuneration

Government of Tasmania 2015

This work is copyright. Apart from use as permitted under the Copyright Act, no

part may be reproduced by any process without the written permission of the Department of Treasury and Finance, Tasmania.

Published by the Department of Treasury and Finance

GPO Box 147 HOBART TAS 7001

Guideline for Tasmanian Government Businesses – Director and Executive Remuneration

CONTENTS

Introduction 1

Application 1

PART A – SETTING EXECUTIVE REMUNERATION 2

1. Remuneration Principles 2

2. Government Business Executive Remuneration Advisory Panel 2

3. Remuneration Policy Particulars 3

4. Key Contractual Terms 4

5. Criteria for Performance Payments 5

6. CEO Performance Appraisal 6

8. Cabinet Endorsement for Exceptions to these Guidelines 6

PART B – DISCLOSURE 6

1. Disclosure to Shareholding Ministers 6

2. Disclosure in Financial Statements 7

APPENDIX 1 8

Definitions 8

APPENDIX 2 9

Example Performance Criteria 9

APPENDIX 3 10

Model Termination Clause 10

APPENDIX 4 12

Government Business Executive Remuneration Advisory Panel Terms of Reference 12

Guideline for Tasmanian Government Businesses – Director and Executive Remuneration 1

REMUNERATION GUIDELINES

Introduction

The purpose of these Guidelines is to outline the expectations of the Shareholding Ministers with

respect to the remuneration arrangements for Senior Executives of Government Businesses.

These Guidelines establish better practice principles and approval procedures for:

• setting of Chief Executive Officer remuneration and employment arrangements;

• setting of other Senior Executive remuneration and employment arrangements; and

• the disclosure of remuneration packages for Directors and Senior Executives in Tasmanian

Government Businesses.

These Guidelines are consistent with approaches taken in a number of other jurisdictions, both

nationally and internationally, to ensure that executive remuneration is aligned with shareholder

and community expectations. They also align with the approach taken through the 2011

amendments to the Corporations Act 2001 which introduced the “two strikes” rule to ensure that

directors of private sector companies are more accountable to their shareholders for the levels

of executive remuneration and performance pay.

The setting of Board fees does not form part of these Guidelines as the Department of Premier

and Cabinet administers an established framework for determining maximum Board fees.

The individual remuneration packages to be awarded to employees other than Senior Executives

are generally matters left to management.

Application

These Guidelines apply to all Government Business Enterprises and State-owned Companies.

Government Businesses which are Agencies under the State Service Act 2000 are exempt from

the requirements relating to the setting of Chief Executive Officer and Senior Executive

remuneration. However, these businesses are required to meet the disclosure requirements

under Part B.

These Guidelines take effect from the day they are issued.

In exceptional circumstances, Cabinet may approve remuneration packages outside these

Guidelines.


PART A – SETTING EXECUTIVE REMUNERATION

1. Remuneration Principles

The key principle for setting executive remuneration arrangements is embodied in the Australian

Securities Exchange Corporate Governance Council’s principle that businesses “should ensure

that the level and composition of remuneration is sufficient and reasonable and that its

relationship to performance is clear”.

Supporting this principle, in the context of Tasmanian Government Businesses, remuneration

arrangements should be:

• aligned with Shareholding Ministers’ expectations;

• transparent, fair and defensible in the Tasmanian Government Business context;

• sufficient to attract, retain and motivate Senior Executives of the quality required but

should avoid paying more than is necessary for the purpose; and

• positioned relative to other comparable organisations, especially those in the public

sector and in the same or similar industry.

In addition, performance pay should only be offered in exceptional circumstances and where the

performance goals are above and beyond the normal expectations of the position. Such incentives

should be linked to specific, objective and measurable goals.

2. Government Business Executive Remuneration Advisory Panel

The Government has established the independent Government Business Executive Remuneration

Advisory Panel to ensure that there is appropriate scrutiny, oversight and reporting on executive

remuneration in Tasmania’s Government Business sector. The objective is to ensure executive

remuneration is not excessive and is broadly in line with public sector levels and wage

movements. The Panel provides advice to the Government on appropriate levels of remuneration

for executives in Government Businesses, within the scope of principles set by the Government.

The three-member Panel, which is appointed by the Treasurer, is responsible for:

• advising Shareholding Ministers on executive remuneration policy for Government

Businesses;

• representing the Shareholding Ministers in the setting of Chief Executive Officer

remuneration; and

• monitoring the implementation of these Guidelines by the Boards of Government

Businesses

Administrative support is provided by the Department of Treasury and Finance. The Panel is to

be funded from the Government businesses.


The Panel is to report to the Treasurer annually and as required on executive remuneration and

is to provide an annual report to Cabinet on overall compliance with the Guidelines for each

financial year.

3. Remuneration Policy Particulars

Chief Executive Officer Remuneration

The Board of a State owned Company is responsible for the selection and appointment of Chief

Executive Officers. Under the Government Business Enterprises Act 1995, the Premier is responsible

for appointing the Chief Executive Officers of GBEs, based upon a recommendation from the

Portfolio Minister following nomination by the Board.

The Executive Remuneration Advisory Panel has established remuneration bands for Chief

Executive Officers of Government Businesses that reflect the principles detailed in these

Guidelines and with maximum remuneration levels that broadly align with State Government

Heads of Agency. Positioning within the bands depends on the complexity and size of the business

and the environment in which the business operates.

In developing the remuneration bands, the Panel considered:

• the legal, regulatory and industrial obligations of the business, labour market conditions

and the relative scale of the business;

• the skills, experience and qualifications required of the position;

• remuneration levels paid to Senior Executives in equivalent businesses within the sector

or of similar sized businesses in terms of revenue, competition, asset base, total

employees, degree of regulation or oversight, degree of risk and complexity of operating

environment; and

• shareholder and community expectations of what are fair and defensible levels of

remuneration.

Exceptions to the Guidelines

The Board of a Government Business, or its Remuneration Committee, is required to ensure

that remuneration packages for Senior Executives, including performance-based incentives where

considered appropriate, are consistent with these Guidelines. This includes complying with the

disclosure requirements in Part B of these Guidelines.

Remuneration packages for all new Chief Executive Officers must fall within the approved

remuneration bands for that business and be endorsed by the Panel prior to a position being

advertised. A copy of the draft CEO Contract must also be provided to the Panel. Any

exceptions to the bands for new Chief Executive Officer appointments or reappointments must

be approved by Cabinet, through the Remuneration Panel, prior to the position being

advertised.

The endorsement of Cabinet must also be sought for Senior Executive packages where:


the remuneration of a Senior Executive is more than 80 per cent of the total remuneration

package of the Chief Executive Officer or the top level of the approved remuneration

band, if the Chief Executive Officer’s remuneration is outside of the approved band; and

● the average total remuneration package of all Senior Executives, excluding the Chief

Executive Officer, is more than 70 per cent of the Chief Executive Officer’s total

remuneration package.

Remuneration Increases

All increases in remuneration are to be consistent with State Services Wages Policy.

In cases where the current total remuneration package of a Chief Executive Officer exceeds the

relevant remuneration band set by the Panel, remuneration increases must be frozen.

Remuneration increases of Senior Executives must also be frozen where an increase would

exceed the remuneration requirements detailed in these Guidelines.

In addition, remuneration increases will not be permitted until such time as the total

remuneration falls within the recommended bands set by the Panel.

Conflicts of Interest

The Board is accountable for addressing any potential conflict of interest whereby an Executive

Director or Senior Executive is involved in setting the remuneration for other Executives that

may indirectly affect their own (for example, through setting a benchmark or because of

relativities). No individual Senior Executive should be involved in deciding his or her own

remuneration.

4. Key Contractual Terms

All Government Business senior executive contracts of employment should:

• include clear duties and responsibilities and performance objectives, including

parameters for annual performance review;

• the basis for calculating performance pay where relevant;

• include remuneration and other benefits such as a vehicle;

• require conflict of interest declarations and ongoing disclosures;

• not contain non-disclosure or confidentiality clauses;

• provide for mediation, arbitration or other alternatives to court or formal tribunal

proceedings in the event of a dispute; not include any payment as part of the appointee’s

consideration for accepting the position;

• contain clear termination provisions, including the model termination clause provided

at Appendix 3.


Under the Government Business Enterprises Act 1995, a Chief Executive Officer contract must

prescribe a set term of not less than three but no more than five years, with no automatic

extension rights following the end of this period. Other executive contracts may be open-ended,

subject to the inclusion of clear termination provisions.

In relation to termination provisions, contracts should contain clear procedures including:

• notice provisions for the termination of service prior to the contracted period required

by both the employer and the employee; and

• details of the notice periods and payments in lieu of notice required by the employer

and employee, differentiating between no-fault terminations and terminations at cause.

Appendix 3 contains a model termination clause. Any variations to the substance of the provisions

in the model template should have strong justification in terms of balancing the need to attract

the best candidate with the expectations of the shareholders and the community for

Government-owned businesses.

In particular, the required notice periods and payments in lieu of notice may be shorter or longer

according to the specific circumstances of the Government business and the Chief Executive

Officer/Senior Executive. Cabinet approval, through the Remuneration Panel, is required for

longer notice periods than those provided for in the model template.

5. Criteria for Performance Payments

In limited circumstances, performance payments may be an appropriate incentive mechanism. In

the context of Tasmanian Government businesses, performance payments may be appropriate

where:

• the business operates in a competitive market;

• performance is beyond normal expectations;

• the business is operating in a non-regulated environment; and/or

• the business or sector is undergoing significant structural change.

While it is up to the Board to determine whether the offer and payment of performance

incentives is appropriate, the relationship between remuneration and performance and how it is

aligned to the creation of value should be clearly articulated to the Shareholding Ministers in the

annual remuneration report.

If performance pay is considered appropriate, the Board is responsible for the setting of

performance targets and is accountable for monitoring performance against the targets. Any

performance based targets, both short and long term, and the method of assessment is to be

clearly articulated in a Board approved remuneration policy and is to be based on objective

criteria. Goals and indicators should be specific, observable, measurable, difficult to manipulate

and aligned with the objectives of the Shareholding Ministers (including the Shareholding

Ministers’ risk/return position).

For Government Businesses, performance targets should include measures for accountability in

financial management, relationships with key stakeholders, human resource practices and

productivity improvements. Appendix 2 contains examples of performance criteria.


Performance based payments must be non-recurrent and are a stand-alone payment that does

not form part of the base salary of the Senior Executive. Performance pay should only be paid

out when performance exceeds the agreed stretch targets. Performance incentives are not

appropriate in circumstances where performance is within that normally expected for the

position.

Performance payments are to be a capped at no greater than 15 per cent of base remuneration.

Cabinet approval is required if a business is to exceed this rate.

6. CEO Performance Appraisal

Boards must ensure that an appraisal of the performance of the Chief Executive Officer is

conducted in respect of each financial year. The review is to be completed no later than 90 days

after the end of the financial year in respect of which it is conducted. An appraisal should consider

both organisational and individual performance against a set of evaluation criteria, including

measurable goals. Where relevant, the Board should determine whether performance merits the

payment of agreed performance incentives.

In the case of an officer approaching the end of their term of appointment and who is to be

considered for reappointment, an appraisal is to be conducted at a minimum of six months prior

to the expiration of their employment agreement. This information is then to be considered by

the Board as an important input into their reappointment deliberations.

A copy of the CEO performance review must be provided to the Shareholding Ministers within

14 days of completion.

7. Reappointment of a CEO

Where a Board decides to extend a Chief Executive Officer’s term or re-appoint the incumbent

Chief Executive Officer, Ministerial approvals or consultations required for appointments and

setting conditions of employment for a new appointment will also apply for re-appointments.

8. Cabinet Endorsement for Exceptions to these Guidelines

Cabinet approval may be given in exceptional circumstances to remuneration packages outside

these Guidelines. Government Businesses must submit a business case for consideration by the

Government Business Executive Remuneration Advisory Panel. The Panel will make a

recommendation to Cabinet, through the Treasurer.

PART B – DISCLOSURE

1. Disclosure to Shareholding Ministers

Following the end of each financial year, Government Businesses are to disclose the remuneration

details for each person that has held, or acted, as a Director or Senior Executive of the business

during the financial year reporting period to the Department of Treasury and Finance and the

Government Business Executive Remuneration Advisory Panel, as the advisors to the

Shareholding Ministers.


Disclosure must be consistent with the template approved by Treasury and available from the

Auditor-General’s website.

Disclosure of this information must be made by the business no later than 30 calendar days after

the end of the financial year to which the information relates.

2. Disclosure in Financial Statements

Government businesses are also required to disclose Director and Executive Remuneration in

the notes to the Financial Statements, consistent with the template approved by Treasury and

available from the Auditor-General’s website.

A statement of compliance with the Government’s Director and Executive Remuneration

Guidelines, as well as cases where Cabinet has granted an exception to the requirements in these

Guidelines, should also be included.

The above disclosure arrangements are designed to be consistent with the framework applying

to disclosing entities under the Section 300A of the Corporations Act 2001, which requires a

disclosing entity to include specific information relating to remuneration of key management

personnel. This approach is consistent with ensuring a high level of accountability and

transparency.


APPENDIX 1

Definitions

• Base Salary means the base remuneration payment paid to the individual that is the fixed,

annual cash salary.

• Directors are persons appointed to the Board of a Government Business either by

Shareholding Ministers, or Executive Council, as appropriate.

• Other Benefits means the total cost to the business of providing any other non-cash

benefits provided to the individual. This includes items such as club memberships, staff

discounts, clothing, and entertainment and hospitality allowances.

• Senior Executives has the same meaning as Key Management Personnel in the

Corporations Act 2001. That is it means those persons in, or acting in, roles having

authority and responsibility for planning, directing and controlling the activities of a

Government Business, either directly or indirectly. Generally Senior Executives will

include those executives identified in the Annual Report of the business. In the context

of these Guidelines, Senior Executive includes the Chief Executive Officer.

• Performance Payment (or Short Term Incentive Payment) means any arrangement providing

payment that depends on achieving certain performance goals within a specified period,

whether performance is measured by reference to the financial performance of the

business or any other performance measure.

• Superannuation means the business’ contribution to the superannuation fund of the

individual.

• Total Remuneration Package includes base salary plus any incentive payments, allowances

and other fixed package components such as superannuation, Fringe Benefits Tax and

vehicles.

• Vehicle means the total cost to the business of providing and maintaining a vehicle,

calculated in accordance with the reporting template approved by Treasury and

available from the Auditor-General’s website.


APPENDIX 2

Example Performance Criteria

Accountability Performance Criteria

Financial management Achievement of financial performance targets

Clear financial objectives

Realistic budgets developed and maintained

Capital works programs delivered on time and within budget

Business performance Exceed set service delivery levels

Achieve key milestones set by the Government

Exceed any industry performance benchmarks

Improved customer satisfaction levels (measure)

Stakeholder relations Ensure Shareholders, Portfolio Ministers and the Department of

Treasury and Finance are appropriately and adequately informed

in a timely manner as required under legislation, regulation or

policy

Comply with reporting requirements

Board kept informed and provided with high quality, timely and

accurate information on business performance and issues

Contributes appropriately to Board deliberations and Government policy

Human resource management Measurable improvement in employee productivity

Effectively lead management team

High employee engagement


APPENDIX 3 Model Termination Clause

Y.1 Unless the Employee’s employment has earlier been terminated under clauses Y.2 to Y.5 or

it is otherwise agreed, the Employee’s employment as Chief Executive Officer under this

Contract will terminate on [date of termination] (“Date of Termination).

Y.2 The [name of business] may terminate the Contract prior to the Date of Termination for

any or no reason provided that [name of business] shall give six (6) months notice in writing

or in lieu of notice by the payment of six (6) months salary and benefits as though the notice

period had been worked.

Y.3 For the avoidance of doubt, benefits to be paid do not include pro-rata Performance Payment

that the Employee would have been entitled to had the Contract not been terminated.

Y.4 The [name of business] may terminate the Contract prior to the Date of Termination where

the Employee has not satisfactorily met any of the terms and conditions of this Contract

provided that [name of business] shall give three(3) months notice in writing or in lieu of

notice by the payment of three (3) months salary.

Y.5 The Employee may terminate the Contract prior to the [date of termination] by giving

three(3) months notice in writing to [name of business]. The notice period may be less if

mutually agreed between the parties.

Y.6 Notwithstanding clause Y.2 or Y.3, [name of business] may terminate the Contract pior to

the Date of Termination without notice if the Employee:

a. commits an act of a serious or persistent breach of the terms and conditions of the

Contract;

b. acts dishonestly, fraudulently, is wilfully disobedient or is guilty of misconduct

c. wilfully breaches or fails to observe or otherwise neglects their discharge of duties to

[business name];

d. wilfully breaches or fails to observe any of the provisions of any Act of Parliament, rules,

regulations, licences applicable to the conduct, operation or management of

[business name];

e. fails to comply with lawful instruction or directions duly authorised;

f. is convicted for any offence precluding or inhibiting the performance of duties under

the Contract;

g. undertakes any activity or action which brings the reputation of [name of business] into

disrepute;

h. becomes incapacitated, preventing the performance of duties under the Contract; or

i. becomes bankrupt or makes a composition, arrangement or assignment for the benefit

of his/her creditors.

Y6. Notwithstanding clause Y.2 And Y.3, if the Employee’s employment is terminated under

clause Y.5, the Employee will be paid only those entitlements due to him/her under annual

leave and long service leave [refer to any relevant clauses].


Y.7 Upon termination of employment for any reason, the Employee agrees to immediately return

to [business name], all property of [business name]. This includes, but is not limited, to [list

property such as a mobile phone, vehicle, personal digital assistant and computer].

Y.8 Upon termination of employment for any reason, the Employee shall resign without claim

for compensation from all directorships and other offices held in conjunction with the

Employee’s employment. The Employee appoints the Chair of [business name] as the

Employee’s attorney to execute any resignations.

Y.9 Where the employee is removed from office in accordance with [insert statutory reference],

the Employee’s employment will terminate immediately. Where the employee is removed

from office other than for a reason which would justify termination of employment under

Y.5, the [business name] will pay to the Employee a sum in lieu of notice under either Y.2 or

Y.3, with the Board to decide whichever is appropriate.


APPENDIX 4

Government Business Executive Remuneration Advisory Panel Terms

of Reference

Background:

The Government Business Executive Remuneration Advisory Panel was established in October

2013 and is accountable to the Treasurer.

The Government Business Executive Remuneration Advisory Panel is to provide advice to the

Government on executive remuneration policy for Government Businesses.

Roles and responsibilities:

The Panel’s role is to:

1. represent the Shareholding Ministers on matters relating to executive remuneration

within Government Businesses;

2. establish remuneration bands for Chief Executive Officers of Government Businesses

that align with maximum remuneration levels of State Government Heads of Agency,

as well as considering:

• the legal, regulatory and industrial environment and labour market conditions;

• any independent advice received by the Government regarding appropriate levels

of executive remuneration in the Government Business sector; and

• the Director and Executive Remuneration Guidelines published by the Department of

Treasury and Finance;

3. endorse the remuneration packages of all Chief Executive Officers of Government

Businesses;

4. consider and provide advice and recommendations to Cabinet where:

• Chief Executive Officer remuneration packages are outside the Guidelines;

• the remuneration of a Senior Executive is more than 80 per cent of the total

remuneration package of the Chief Executive Officer of the business;

• the average total remuneration package of all Senior Executive, excluding the Chief

Executive Officer, is more than 70 per cent of the Chief Executive Officer’s total

remuneration package; and

• performance payments of a Senior Executive exceed the rates outlined in the

Guidelines.


Membership:

The Panel is comprised of:

1. Mr Damien Bugg AM QC (Chair)

2. the Secretary of the Department of Premier and Cabinet; and

3. the Secretary of the Department of Treasury and Finance.

The Chair of the Panel is Mr Damien Bugg. Should he be unavailable, the Chair will be assumed

by the Secretary of the Department of Treasury and Finance.

Membership of the Panel has been determined to ensure that, as far as possible, potential conflicts

of interest are eliminated.

The Shareholder Policy and Markets Branch of the Department of Treasury and Finance will

provide administrative support.

Operation of meetings:

The Panel will be convened as the need arises. Two members of the Panel form a quorum. At

least one member must be from outside the Tasmanian State Service.

The Panel is to keep minutes of its proceedings.

Disclosure of interests:

If:

• a member of the Panel has a direct or indirect pecuniary interest or interest of another

nature which may give rise to a real or perceived conflict of interest in a matter being

considered, or about to be considered, and

• that interest could conflict with the proper performance of the member’s duties in

relation to consideration of a matter,

the member must, as soon as practical after the relevant facts come to the member’s knowledge,

disclose the nature of the interest to the Treasurer.

Reporting:

The Panel is to:

• provide an annual report to the Treasurer on Government Business executive

remuneration policies and any issues that arose during the preceding 12 month period;

and

• provide an annual report to Cabinet on compliance by Government Businesses with

the Guidelines.

The Department of Treasury and Finance Shareholder Policy and Markets Branch

Murray Street 21 HOBART TAS 7000

Telephone (03) 6166 4444

Facsimile (03) 6223 2755 Email [email protected]

Further information can be obtained at

www.treasury.tas.gov.au

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