2.1
The Public Governance, Performance and Accountability Amendment (Executive Remuneration) Bill 2017 (the Bill), introduced by Senator Peter Whish-Wilson, 'seeks to establish caps on the remuneration paid to senior executives in the Commonwealth public service as well as annual reporting requirements regarding this remuneration'.
2.2
In his second reading of the Bill, Senator Whish-Wilson noted that for:
…the broader issue of excessive executive remuneration to be tackled, and for the pay gap between the rich and the poor to be bridged, this [the Bill] is a good first place to start. Because the government has role to play in setting public service salaries, Parliament can play a leadership role in tackling growing wage inequality, and set public service executive salaries to better conform to community expectations and standards.
2.3
Senator Whish-Wilson further stated:
There is little evidence that, beyond a certain point, increased remuneration provides an incentive for executives to perform better. Senior executives are rarely as uniquely skilled or as valuable as excessive salaries would suggest.
2.4
Senator Whish-Wilson also drew attention to an increased pay inequalities in the public sector between senior and 'lower ranking' public servants:
The Commonwealth public service has not been immune from the trend towards excessive executive salaries. Since 2010, the salaries in the Senior Executive Service have risen 18%, and that of Commonwealth Departmental Secretaries even more. Over the same period, the salaries of lower ranking public servants have risen just 13%.
2.5
To counter this increased wage differential, Senator Whish-Wilson has sought to introduce a remuneration cap to curb growing senior executive pay within the public sector. The Senator stated this will 'directly challenge the idea that excessive executive pay is inevitable and, in doing so, will set an example for the private sector'.
Proposed remuneration cap
2.6
The proposed cap for senior executives of a Commonwealth entity or a Commonwealth company would limit total remuneration to five times annualised average weekly earnings (AAWE). The remuneration cap would be worked out using the following formula:
2.7
AAWE is calculated by multiplying the number of weeks in the reporting period by the average weekly earnings (AWE). The AWE is classified as 'the amount published by the Australian Statistician in a document titled "Average Weekly Earnings" under the headings "Average Weekly Earnings, Australia–Original–Full-time adult average weekly total earnings".
2.8
Under the Bill a person is considered to be a senior executive of a Commonwealth entity if the person is the holder of, or is appointed to:
(a)
a principal executive office (within the meaning of the Remuneration Tribunal Act 1973) of that entity; or
(b)
the office of a Secretary of a Department or a Parliamentary Department.
2.9
The Bill further notes that 'a wholly-owned Commonwealth company must not pay a senior executive remuneration…exceeding the remuneration cap for the pay period."
2.10
On current figures, the effect of this cap would reduce the maximum salary of executives in the public service to approximately $420 000 per annum. This would be a significant reduction in salary for many of the most highly paid public servants, and would cut the wages of some by as much as half.
Remuneration reporting
2.11
New remuneration reporting arrangements are also proposed by the Bill.
2.12
The Bill seeks to introduce annual public reporting requirements to ensure that 'Commonwealth departments and companies covered by the Act will be required to report annually on the total remuneration of executives, the ratio of total remuneration to the average wage, and the ratio of total remuneration to the minimum wage'. These requirements seek to introduce transparency to executive pay and 'ensure that there is a constant reminder of the level of disparity that exists with the wage structure'.