Performance bonus review - Interim report

Overview

On 12 November 2020, the Prime Minister wrote to the Assistant Minister to the Prime Minister and Cabinet agreeing to a review of existing performance bonus arrangements for SES-level Australian Public Service (APS) employees, as well as officials of corporate Commonwealth entities and Commonwealth companies (entities^[1]).

The Review is being conducted by a panel comprising: the Secretary of the Department of the Prime Minister and Cabinet, the Secretary of the Department of Finance and the Australian Public Service Commissioner.

The Review initially analysed data for the 2018-19 financial year using data from the Transparency Portal (transparency.gov.au), annual reports and a subsequent survey of 55 entities. The 2018-19 financial year was selected for analysis as the 2019-20 financial year was atypical and unlikely to yield representative data due to the impacts of the COVID-19 pandemic. The Review then conducted a comparative analysis between the 2018-19 and 2019-20 financial years.

Based on 2018-19 data, 74 Commonwealth entities were identified as paying performance bonuses (listed in Attachment A). Fifty-five^[2] of these were in scope for the Review and requested to provide additional information on governance arrangements and policies. Key findings from the data analysis and survey information are:

• Performance bonuses are uncommon across Commonwealth employers and even less so in APS entities.
• Performance bonus arrangements are most frequently used by Government Business Enterprises (GBEs), regulatory entities and other entities that operate in the financial sector.
• Commonwealth entities use performance bonuses in a variety of ways.
• There are generally strong governance arrangements supporting performance bonus arrangements in the form of policy, multiple levels of decision-making and reporting.
• There are inconsistencies in how Commonwealth entities report bonuses and in their decision-making processes.

Comparative analysis of the reporting of bonuses paid in 2018-19 and 2019-20 validated these findings. Further, fewer entities reported paying bonuses in the 2019-20 reporting period, while numerous entities indicated in annual reports that they had taken decisions to restrain performance based payments.

This interim report makes two recommendations:

Recommendation 1 – draft guidance for accountable authorities should be developed in consultation with Commonwealth entities, taking into account the various governance arrangements of entities including that some entities operate in a commercial environment.

The guidance should be based on the underlying principles that:

1. All Commonwealth entities have a responsibility to the Parliament and the Australian public and should act in line with community expectations, regardless of their level of independence from the Government
2. Commonwealth entities should exercise rigour and restraint in using bonus payments
3. Bonus payments should clearly align with an individual’s performance and in doing so demonstrably deliver a public benefit.

Recommendation 2 – transparency should continue to be strengthened through ongoing enhancements to the Transparency Portal and refining guidance to increase accuracy and consistency of entity reporting.

The Hon. Ben Morton MP, Assistant Minister to the Minister for the Public Service, has agreed to the two recommendations of the interim report.

^[1] For the purposes of this report, the common term ‘entities’ and ‘entity’ is used to denote Commonwealth entities (non-corporate Commonwealth entities and corporate Commonwealth entities) and Commonwealth companies, unless there is a need to specifically refer to one of these entity groups or types.

^[2] Only 55 were asked further information due to a variety of factors. Entities not surveyed include those that clearly only paid bonuses to staff under the jurisdiction of the Remuneration Tribunal, do not normally pay bonuses to senior staff but a junior staff member acted at a higher level resulting in recording a bonus, if the employment instrument that paid the bonuses no longer exists and wasn’t replaced with another that includes bonuses, and the entity no longer exists due to a Machinery of Government change.