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Remuneration policy findings

Participants in the 2010 APS Remuneration Survey also completed a HR Policies and Practices (HRPP) questionnaire, and the information and analysis provided in this section is based on responses from participating agencies. 

Executive remuneration strategy

A well-developed remuneration strategy for executive positions is an essential component of any organisation’s human resource and management policy framework. Such policies need to be consistent with, and reinforce, the agency’s broader business and HR strategies. It is equally important to communicate this strategy to executive level employees in order to obtain their understanding and commitment to it. Typically, we would expect an executive remuneration strategy to include provisions to ensure that:

  • executives are encouraged and motivated to achieve high levels of performance
  • individual goals are aligned with key organisational goals and stakeholder interests
  • executives model the organisation’s values and desired behaviours.

In 2010, 57 per cent of agencies reported that they had a formal SES remuneration strategy which was used as a basis for program design and pay decisions. This was somewhat lower than the 74 per cent of participating agencies who reported having a formal remuneration strategy in 2009. Of the agencies reporting a formal SES remuneration strategy, 68 per cent communicated the strategy to employees. This represents a significant reduction from 2009 when nearly all agencies (98 per cent) communicated their remuneration strategy to employees.

As noted in Table 7.1, in terms of the focus of the executive remuneration strategy, 43 per cent and 41 per cent respectively reported managing remuneration at the Base Salary or TRP level. In previous years, either Base Salary and Performance Bonus or TR was the primary focus of remuneration strategies. However, with the reported 2009 decrease in the number of SES employees who receive performance bonuses, there has been a move towards managing remuneration through communicating Base Salary and/or TRP.

Table 7.1 – Focus of Remuneration Strategy (% of Agencies)
  2007 n=40 2008 n=38 2009 n=42 2010 n=74
Note: Percentages reflect incidence; they may, but do not need to, sum to 100 per cent vertically
Base Salary 23% 18% 24% 43%
Total Remuneration Package (TRP) 25% 26% 47% 41%
Base Salary and Performance Bonus 25% 18% 12% 5%
Performance Bonus -- -- -- --
TRP and Performance Bonus 27% 34% 17% 11%

Use of performance bonuses

Within the APS, formal links between performance and reward have been a key element of SES remuneration strategy for some years. Table 7.2 shows the percentage of agencies using performance bonuses for SES employees according to SES classification.

Table 7.2 – Use of Performance Bonuses (% of Agencies) in 2010, 2009 and 2008
  SES 1 SES 2 SES 3
n Use n Use n Use
2010 91 38% 67 34% 41 32%
2009 56 59% 44 55% 31 48%
2008 54 82% 46 80% 28 75%

As noted in Table 7.2, cumulatively, just over one third of SES employees receive a performance bonus. However, for all SES levels, this has reduced substantially since 2008; this is likely due to agencies ‘buying out’ their SES employees’ bonus arrangements.

Use of retention bonuses

Table 7.3 shows the percentage of agencies using retention bonuses for SES employees. Please note that 2008 was the first time retention bonuses were surveyed separately. In prior years, such bonuses were included with performance bonuses. Since 2008, the prevalence of retention bonuses for SES employees has remained fairly consistent, though there have been slight annual decreases.

Table 7.3 – Use of Retention Bonuses (% of Agencies) in 2010, 2009 and 2008
  SES 1 SES 2 SES 3
n Use n Use n Use
2010 92 15% 67 16% 42 12%
2009 56 18% 44 18% 31 16%
2008 54 19% 46 17% 28 29%

Executive remuneration benchmarking

In terms of managing and reviewing remuneration, organisations generally have a policy that reflects:

  • which groups or market sectors are used for comparison and benchmarking purposes
  • the targeted pay policy position on competitiveness (e.g. Q1, median, Q3, etc).

The following chart shows the comparator groups used by agencies to benchmark their TRP payment levels for SES employees.

Chart 7.1 – Remuneration Benchmark Comparator Groups for SES Employees

Although the percentages are lower than in 2009, the APS Remuneration Survey and selected public sector agencies were the most commonly used benchmarking comparators across all SES classifications.

When benchmarking SES remuneration, agencies also aspire to a certain level of competitiveness in the attraction and retention of staff. Tables 7.4 to 7.6 show the Q1, median and Q3 target positioning for agencies who responded to this question for SES 1, SES 2 and SES 3 employees respectively. Note that the total percentages shown in the following tables may not match those indicated in the preceding Chart, as a small number of agencies either aligned with a position other than those noted above or do not benchmark against the identified peer group. 

Table 7.4 – Remuneration Comparator Benchmark Groups – Target Position Reported for SES 1 in 2010
  n Not Applicable Lower Quartile Median Upper Quartile Other
APS remuneration survey 86 42% 3% 33% 19% 3%
Select public sector agencies 81 56% 2% 21% 17% 4%
Select industry peer group used specifically for remuneration benchmarking 76 93% -- 7% -- --
Broad industry peers/ index 78 94% 3% 4% -- --
General market comparator group 75 96% -- 4% -- --
Published survey data (other than APS remuneration survey) 74 91% -- 8% 1% --
Reflect non-SES increases 77 70% -- 13% 4% 13%
Table 7.5 – Remuneration Comparator Benchmark Groups – Target Position Reported for SES 2 in 2010
  n Not Applicable Lower Quartile Median Upper Quartile Other
APS remuneration survey 74 46% 3% 26% 23% 3%
Select public sector agencies 72 61% 1% 17% 19% 1%
Select industry peer group used specifically for remuneration benchmarking 68 94% 1% 4% -- --
Broad industry peers/ index 69 94% -- 4% 1% --
General market comparator group 68 96% -- 4% -- --
Published survey data (other than APS remuneration survey) 67 91% -- 7% 1% --
Reflect non-SES increases 69 75% -- 10% 4% 10%
Table 7.6 – Remuneration Comparator Benchmark Groups – Target Position Reported for SES 3 in 2010
  n Not Applicable Lower Quartile Median Upper Quartile Other
APS remuneration survey 58 60% -- 22% 17% --
Select public sector agencies 57 74% -- 12% 12% 2%
Select industry peer group used specifically for remuneration benchmarking 54 96% -- 4% -- --
Broad industry peers/ index 54 96% -- 4% -- --
General market comparator group 54 96% -- 4% -- --
Published survey data (other than APS remuneration survey) 53 91% -- 8% 2% --
Reflect non-SES increases 54 85% -- 2% -- 13%

As Tables 7.4 to 7.6 indicate, many agencies benchmark remuneration against the APS Remuneration Survey and/or selected public sector agencies for SES 1 and SES 2 (and to a lesser degree for SES 3) positions. Generally, more agencies reported benchmarking at the median than within the upper quartile when referencing the APS remuneration survey, though this pattern did not occur when agencies referenced select public sector agencies.

Table 7.7 shows the percentage of agencies who regarded various market sectors as key competitors for the attraction and retention of talented and experienced employees. The responses in 2010 are similar to those reported over the last three years.

Table 7.7 – Key Competitors for the Attraction and Retention of Talent (% of Agencies)
  SES 1 n=90 SES 2 n=65 SES 3 n=36
Commonwealth Public Sector 94% 92% 92%
Other public sector (State or local government) 66% 65% 67%
Government Business Enterprises 43% 48% 53%
Private sector 51% 57% 61%
Other 9% 6% --

Although agencies mostly report only benchmarking their remuneration for SES employees against other APS agencies and select public sector organisations at State and Territory level, Government Business Enterprises and the private sector generally continue to be regarded as strong competitors for the attraction and retention of SES employees. 

Remuneration management practices

Definition and setting of remuneration

Tables 7.8 and 7.9 show the data for the minimum and maximum TRP values as defined by each agency at a policy level. As the data has been aggregated, the statistics shown below will not necessarily equal the actual amounts paid by any one agency.

Table 7.8 – Minimum TRP as Defined in Agencies’ Remuneration Policy in 2010
Band Year n Q1 Median Q3 Average
SES 1 2010 32 $165,425 $184,916 $198,463 $182,115
  2009 25 $153,829 $172,539 $183,541 $169,518
SES 2 2010 24 $215,394 $234,199 $252,977 $231,816
  2009 19 $192,274 $215,432 $230,720 $213,552
SES 3 2010 12 $260,274 $285,673 $310,674 $285,741
  2009 12 $240,000 $261,883 $314,269 $271,901

As can be seen from Table 7.8, on average agencies have increased their stated minimum TRP levels since 2009. When comparing the quartiles for minimum TRP levels from 2009 to 2010, the amounts stated have increased across all SES bands at Q1, the median and the average. TRP has increased at Q3 for SES 1 and SES 2, but has decreased slightly for SES 3.

Table 7.9 – Maximum TRP as Defined in Agencies’ Remuneration Policy in 2010
Band Year n Q1 Median Q3 Average
SES 1 2010 30 $205,182 $218,534 $233,916 $221,078
2009 23 $191,454 $205,032 $226,000 $210,107
SES 2 2010 22 $240,000 $265,328 $284,113 $262,283
2009 18 $217,371 $253,006 $274,000 $253,576
SES 3 2010 9 $286,237 $315,895 $336,284 $315,159
2009 10 $275,891 $307,381 $322,539 $301,091

A similar result can be seen for the maximum TRP payments as defined in agencies’ remuneration policies. As can be seen from Table 7.9, agencies have increased their average stated maximum TRP levels since 2009 across all SES bands. When comparing the quartiles for minimum TRP levels from 2009 to 2010, the reported amounts have increased consistently across all the SES bands at Q1, median and Q3 aggregates.

Another important element of ongoing remuneration management involves agencies making decisions about starting salaries, both for new appointees and/or for employees moving into a higher SES classification. Table 7.10 shows the percentage of agencies reporting the use of particular methods of determining starting salaries.

Table 7.10 – Determining Starting Salaries in 2010
  SES 1 n=89 SES 2 n=63 SES 3 n=37
At the discretion of Agency Head 51% 43% 54%
Using market data 4% 2% 3%
In line with others in the agency in the same SES Band 12% 14% 11%
Job evaluation 1% 2% 0%
At the minimum of the SES Band 27% 32% 24%
Other 4% 8% 8%

As identified in Table 7.10, it is clear that the majority of agencies set starting salaries at the discretion of the Agency Head. However, it is likely that in exercising their discretion, Agency Heads would be cognisant of their agency’s minimum salary points, and the salaries of other employees within that classification.

Superannuation

Data has been presented in Section 3 indicating that many employees have a different salary for superannuation purposes than their Base Salary as at 31 December 2010. Between 36 per cent (for SES 1 and SES 2) and 41 per cent (for SES 3) of agencies allowed employees to negotiate a salary for superannuation purposes that was different to their Base Salary.

For members of defined benefit schemes (CSS and PSS), 27 per cent to 32 per cent of agencies reported allowing for higher employer contributions as a result of contributions being calculated on a higher salary than the employee’s actual Base Salary. For the newer schemes such as PSSAP and AGEST, which are more flexible, this proportion is between 52 per cent and 53 per cent depending on the SES classification of the employee.

Motor vehicles

Apart from superannuation, where the major schemes apply to all SES classifications irrespective of the employing agency, motor vehicles are the most significant benefit item in terms of their value.

In 2010, 41 per cent to 53 per cent of agencies reported offering motor vehicles to SES employees (depending on SES classification), considerably less than the number of agencies offering motor vehicles in 2009. This may be due to an increase in agencies offering a cash benefit in lieu of a vehicle.

Mercer has consistently reported, since the 2004 survey, that a significant policy shift had occurred in how motor vehicles were provided (particularly for SES 1 employees), whereby the majority of agencies had established a standard vehicle costing to cover all actual costs, with reconciliation at the end of the FBT year. This trend was maintained for 2010, with the clear majority of agencies continuing to either set a predetermined vehicle budget for each SES classification or use actual costs, as evidenced in Table 7.11.

Table 7.11 – Determining Motor Vehicle Costs (% of Agencies)
  SES 1 n=68 SES 2 n=49 SES 3 n=29
Set a predetermined vehicle budget amount for each SES band 65% 63% 66%
Using the actual annual costs of the vehicle (lease costs) excluding running maintenance and other associated costs -- -- --
Using the actual annual costs of the vehicle (lease costs) including running maintenance and other associated costs 16% 14% 14%
Using a formula or estimated value (e.g. Mercer car formula) 4% 4% 3%
Other 15% 18% 17%

On average, 40 per cent of SES employees are also able to choose a lower or higher cost vehicle and receive the balance or pay the difference of a pre-determined cash amount. This flexibility is consistent across SES classification levels, with 40 per cent of agencies reporting SES 1 and SES 2 employees could exercise this choice, and 41 per cent of agencies allowing SES 3 employees this choice.

In terms of cash payments in lieu of receiving a motor vehicle, 90 per cent of agencies allowed SES 1 employees to make this choice; 87 per cent of agencies allowed SES 2 employees to make this choice; and 79 per cent of agencies allowed SES 3 employees to make this choice.

In terms of the amount of cash in lieu payments, Table 7.12 shows that most agencies have the same amount whether the vehicle is taken as a benefit or as a cash value.

Table 7.12 – Cash in Lieu Payments Relative to the Remuneration Cost of the Vehicle
  SES 1 n=72 SES 2 n=48 SES 3 n=29
Higher -- -- --
Same 85% 85% 86%
Lower 15% 15% 14%

The average percentage across agencies of SES employees who have elected to take cash in lieu of a motor vehicle was 65 per cent (SES 1); 56 per cent (SES 2); and 54 per cent (SES 3). These percentages are slightly higher than in 2009.

SES agreements

This section provides a snapshot of terms and conditions for SES employees in 2010.

In 2010, 33 per cent of agencies’ workplace agreements for SES employees are made using Individual Section 24(1) Determinations under the Public Service Act 1999. Common Law Agreements were offered by 18 per cent of agencies to particular SES classifications.

Similarities in terms and conditions within employment instruments

Tables 7.13 to 7.15 examine the extent of similarities in pay, terms and conditions for AWA, CLA and Individual S24(1) respectively.

Table 7.13 - Similarity of Pay, Terms and Conditions in AWA (% of Agencies)
Classification SES 1 n=42 SES 2 n=39 SES 3 n=34
All the same 21% 15% 6%
The same for particular job roles 5% 3% --
Standard template with some variations within a given framework 31% 23% 18%
Individually tailored 5% 5% 9%
Table 7.14 - Similarity of Pay, Terms and Conditions in CLA (% of Agencies)
Classification SES 1 n=50 SES 2 n=43 SES 3 n=36
All the same 14% 14% 8%
The same for particular job roles 2% 2% --
Standard template with some variations within a given framework 52% 37% 25%
Individually tailored -- -- 3%
Table 7.15 - Similarity of Pay, Terms and Conditions in Individual S24(1) (% of Agencies)
Classification SES 1 n=64 SES 2 n=54 SES 3 n=43
All the same 16% 15% 7%
The same for particular job roles 2% 2% 2%
Standard template with some variations within a given framework 63% 54% 44%
Individually tailored 5% 7% 5%

As can be seen in Tables 7.13 to 7.15, most agencies used standard templates with some variations when employing individuals on those instruments. Only a small proportion of agencies standardised the pay, terms and conditions according to particular jobs.

Remuneration review practices

In 2010, 73 per cent of agencies reported having a regular remuneration review process for all employees. In addition, Table 7.16 below shows that the majority of agencies reported having a regular remuneration review process for SES employees, with the majority reviewing remuneration on a yearly basis at the same time for all or most SES employees.

Table 7.16 – Remuneration Review Process
n=93 Remuneration Review Process in 2010
Yearly, at the same time for all or most SES employees 92%
Yearly, on employee's anniversary of commencement 8%
Half-yearly --
Every 18-24 months --
Irregularly 3%

Total remuneration approach

A total remuneration approach exists where an organisation calculates the costs associated with employing an individual beyond simply their Base Salary. Calculating and communicating the total remuneration value enables the agency and its employees to understand the full value of remuneration and make valid comparisons between jobs of similar work value and classification.

Table 7.17 shows that remuneration packaging remains a key element of SES remuneration management for most agencies, although the number of agencies utilising this approach has generally decreased over the past year.

Table 7.17 – Incidence of Total Remuneration Approach
  SES 1 SES 2 SES 3
n Use n Use n Use
2010 90 49% 74 42% 58 31%
2009 56 55% 48 52% 38 47%
2008 54 48% 46 48% 32 44%

Performance and reward linkages

Performance pay

Table 7.18 shows the proportion of agencies that have a formal goal setting and performance appraisal process, according to classification. The majority of agencies have a formal process in place.

Table 7.18 – Formal Goal Setting and Performance Appraisal (% of Agencies)
  SES 1 n=90 SES2 n=66 SES 3 n=41
2010 90% 89% 90%

Between 32 per cent and 38 per cent of participating agencies have a policy that utilises performance pay arrangements for SES employees, as indicated in Table 7.19 below. This is a significant decrease from 2009, where between 48 per cent and 59 per cent of agencies had such a policy in place, and even more so from the 2008 position.

Table 7.19 – Use Performance Pay Arrangements for SES Employees
  SES 1 SES 2 SES 3
n Use n Use n Use
2010 91 38% 67 34% 41 32%
2009 56 59% 44 55% 31 48%
2008 54 82% 46 80% 28 75%

Performance rating scales

Table 7.20 shows the percentage of agencies that use performance rating scales, and the proportion that used them to determine performance bonus payments according to their classification. The majority of agencies used performance rating scales for all levels of SES employees.

Table 7.20 – Use of Rating Scale for Performance Pay Arrangements in 2010
  SES 1 n=83-88 SES2 n=59-62 SES 3 n=41-43
Used for performance ratings 80% 81% 73%
Used to determine performance bonus eligibility 40% 39% 33%

Table 7.21 shows the number of points contained within the appraisal rating scale for each SES classification. Most agencies have a 4 or 5 point rating scale.

Table 7.21 – Points Contained within Appraisal Rating Scale
  SES 1 n=72 SES 2 n=51 SES 3 n=29
2 points 4% 6% --
3 points 14% 6% 3%
4 points 24% 24% 28%
5 points 47% 51% 52%
More than 5 points 11% 14% 17%

Table 7.22 shows the performance rating(s) required to receive a performance bonus, according to classification. This shows that the majority of agencies either require the SES employee to exhibit fully effective or superior/outstanding performance in order to receive a performance bonus.

Table 7.22 – Performance Level Required to Receive a Performance Bonus Payment in 2010
  SES 1 n=43 SES 2 n=30 SES 3 n=18
Above satisfactory performance (e.g. superior/outstanding) 16% 17% 17%
Satisfactory performance (e.g fully effective/effective) 60% 57% 50%
No rating specified 9% 7% 6%
Other 14% 20% 28%

Table 7.23 shows the performance rating(s) required to receive a maximum bonus payment. The majority of agencies required a performance rating of ‘outstanding’ to provide a maximum performance bonus.

Table 7.23 – Performance Level Required to Receive a Maximum Performance Bonus Payment in 2010
  SES 1 n=41 SES 2 n=30 SES 3 n=18
Outstanding (e.g. far exceeds) 61% 70% 56%
Superior (e.g. exceeds) 2% 3% 6%
Above satisfactory (e.g. highly effective) 2% -- 6%
Satisfactory (e.g. effective) 10% 3% --
No rating specified 10% 7% 11%
Other 15% 17% 22%

Performance bonus determination and payment

Table 7.24 shows how the performance bonus is determined for SES employees. Bonuses are typically determined as a percentage of the employee’s remuneration, which was a similar finding to that of last year.

Table 7.24 – Determining the Performance Bonus Amount in 2010
  SES 1 n=37 SES 2 n=26 SES 3 n=15
Percentage of bonus pool -- -- --
Percentage of employee's remuneration 70% 69% 67%
$ value 16% 12% 13%
Discretionary 3% 4% --
Other 11% 15% 20%

When performance bonuses were paid to employees, the majority were paid as a cash lump sum as shown in Table 7.25. Again, this is in line with previous years’ findings.

Table 7.25 – Performance Bonus Payment Method (% of Agencies in 2010)
  SES 1 n=43 SES 2 n=29 SES 3 n=17
Cash lump sum 74% 72% 65%
Increase in base salary 12% 17% 18%
Other 14% 10% 18%

Retention bonuses

As has been reported in Section 2, the incidence of SES employees receiving retention bonuses is very low, and not all eligible employees received such payments. According to agencies’ remuneration policies, eligibility was highest at SES 2 and lowest at SES 3, as can be seen in Chart 7.2.

Chart 7.2 – Use of Retention Bonuses in 2010 (% of Agencies)

Across those agencies that responded positively, Table 7.26 indicates that in 2010 the average percentage of SES employees that received a retention bonus ranged between 25.2 per cent (SES 3) and 36.7 per cent (SES 2).

Table 7.26 – Average Percentage of SES Employees Receiving a Retention Bonus in 2010
  SES 1 n=11 SES 2 n=9 SES 3 n=4
% of Employees 29.3% 36.7% 25.2%

As detailed in Table 7.27 overleaf, the main criteria for offering a retention bonus to employees was the need for specialist skills, followed by criticality to a project and the retention of employees.

Table 7.27 – Criteria for Offering a Retention Bonus (% of Agencies)
  SES 1 n=30 SES 2 n=26 SES 3 n=17
Critical to a project 30% 27% 29%
Specialist skills required 30% 31% 29%
Retain staff (e.g. pending corporatisation, sale or relocation) 23% 27% 24%
Other 17% 15% 18%

Clearly, even though many agencies have policies in place governing retention bonuses for SES employees, the incidence of such payments is low (although, as shown earlier in Table 2.10, for the few employees receiving such payments, the amounts may be significant). The payment of retention bonuses to SES employees was still not a common remuneration practice for the majority of agencies.

Table 7.28 looks at the basis for paying retention bonuses. For 2010, the majority of agencies reported providing the bonus at a particular ‘point in time’, similar to the finding in 2009.

Table 7.28 – Basis of Payment of Retention Bonuses (% of Agencies)
  SES 1 n=20 SES 2 n=18 SES 3 n=11
On completion of a milestone (e.g. project) 25% 33% 36%
At a point in time (e.g. 6 months continuous employment) 60% 50% 36%
Other 15% 17% 27%