5.1
As outlined in Chapter 4, on 21 November 2018, four Cartier watches were given to four senior managers at Australia Post (watch recipients), by the former Group Chief Executive Officer and Managing Director (CEO) of Australia Post, Ms Christine Holgate. The watches related to the work performed and outcomes achieved by the Bank@Post Refresh team.
5.2
This chapter looks at:
Whether the purchase and/or gifting of the watches was done with the knowledge and/or approval of the former Chair, Mr John Stanhope AO, and the Board.
Whether the purchase and provision of the watches complied with, or contravened, Australia Post policy at the time and the obligations of Australia Post and its executives under the Public Governance, Performance and Accountability Act 2013 (PGPA Act).
How the watches compare with other executive gifts, rewards and bonuses across Commonwealth government business enterprises (GBEs).
Evidence comparing the provision of gifts, bonuses and rewards at Australia Post under the leadership of Ms Holgate, with that during the tenure of previous Group CEO and Managing Director, Mr Ahmed Fahour.
Involvement of the former Chair
5.3
Ms Holgate submitted that the four Cartier watches were purchased in 2018 by her Executive Assistant (EA) 'on behalf of [herself] and the Chair', and 'were approved by the Chair at the time, John Stanhope'. Ms Holgate's EA bought the watches on instruction from Ms Holgate, and organised 'a small morning tea as an opportunity to present them'. Ms Holgate said:
Both John Stanhope as Chair of the Board and I wrote a note to each of the four recipients in their accompanying cards. Janelle Hopkins, the CFO and Ingo Bohlken [Executive General Manager of Product & Innovation] joined me and the four managers for the presentation and John Stanhope joined us for a short period.
5.4
Ms Holgate submitted a photograph of one of the cards presented with the watches, which shows the Chair's signature and note to the recipient (Figure 5.1).
5.5
According to the report of law firm Maddocks, Investigation into the proper use of public resources at Australia Post, the former Chair, Mr Stanhope, agreed with statements that there had been discussions between himself and Ms Holgate around 'providing some form of reward and recognition' to the team that worked on the Bank@Post Refresh project, but did not accept that 'he ultimately approved the provision of the Watches to the Watch Recipients'.
5.6
Ms Holgate submitted that the former Chair called her on 22 October 2020 to discuss the watches. She said that Mr Stanhope called to say he had received a phone call from a journalist from the Australian Financial Review (AFR), and had told the journalist that he:
…didn't know what they were talking about and simply answered, 'I do not know anything about it'. Mr Stanhope and I spoke about the watches and Bank@Post and I advised John Stanhope about the photograph of the card we both signed.
5.7
Mr Stanhope appeared to provide contradictory evidence about the call. According to Mr Stanhope, he said to Ms Holgate: 'What's going on?' because I was getting all these phone calls. And she said: 'Look, I can't really talk. I've just come from Senate estimates. I'm about to get into a car'. Mr Stanhope was then asked if he had had 'any other discussion' or if that was the end of the call. Mr Stanhope said:
No. She said: 'I'm getting in a car. I can't talk to you'. I did try to contact Ms Holgate a couple of days later because there was a whole lot of press and so on that was occurring, but she wasn't answering her phone. I was ringing to find out if she was alright.
5.8
On 24 October 2020, Mr Stanhope's interview with the journalist was quoted in the AFR:
These people did an exceptional job and deserved a reward. But we left it for the CEO to decide the nature of that reward. I don't recall being asked about how much would be spent.
Did Christine drag me out of my office briefly for a morning tea presentation? I have checked my diary. It is not in my diary and I can't recall. Was I told it was a watch? No.
I do think Christine has been caught in some kind of wider play.
5.9
At his public hearing appearance, Mr Stanhope reiterated that he had indeed signed the cards; that at the time he did not know what the gifts were; and that they had not been brought for him to see on the day. Mr Stanhope added, '[t]he choice of reward was left, by me, to the CEO, at her discretion'.
5.10
Mr Stanhope also disputed Ms Holgate's evidence that he 'attended a presentation', saying, 'my recollection was that I didn't. I checked again with my diary and my executive assistant, and it appears I did not'.
5.11
Mr Stanhope was asked, 'Why would someone write in the card and not know what the gift was?' His response was:
I knew they were getting a gift; I did not know what it was. If you read the words in the card, I don't talk about a gift at all. I say 'job well done' and sign it, which is a good thing for a chairman to do for people who have done a good job.
5.12
In its report, Maddocks stated that the watch recipients 'had the impression that the gift was a token of appreciation on behalf of the former CEO and the former Chair'. Ultimately, the Maddocks review made '[n]o definitive finding' in relation to whether or not Mr Stanhope knew the rewards to be purchased were Cartier watches:
There is contradictory evidence as to whether the former Group CEO & Managing Director informed the former Chair that it was her intention to purchase the Cartier watches or whether the former Chair approved the commitment of funds for this purchase.
Involvement of the Board
5.13
Maddocks found no documentary evidence that the then Board considered or approved the purchase of the Cartier watches, and 'none of the Board members interviewed recalled any discussion about the purchase of, the Cartier watches'. Maddocks noted that Board members interviewed for the investigation 'consistently stated that the first time they became aware of the Watches was during the Senate Estimates hearing on 22 October 2020'.
5.14
Ms Holgate agreed with this assessment, saying neither she nor the former Chair 'have ever said we put it through the board for approval'. Ms Holgate said this would have been unnecessary and not standard practice, as the expenditure was well within her delegation, and supported by the Chair.
Compliance with Australia Post policy and the PGPA Act
5.15
Australia Post is a Corporate Commonwealth Entity that is prescribed as a Government Business Enterprise (GBE). GBEs are subject to both their enabling legislation—in the case of Australia Post this is the Australian Postal Corporation Act 1989 (APC Act); the Public Governance, Performance and Accountability Act 2013 (PGPA Act) and Public Governance, Performance and Accountability Rule 2014 (PGPA Rule), and related legislation.
5.16
This section considers whether the purchase of the watches was compliant with, or in breach of, a) Australia Post policy, and/or b) the PGPA Act.
Australia Post policy
5.17
The APC Act refers to the position of 'Managing Director'. In practice, the position of Managing Director, as defined by the APC Act, is generally referred to as the Chief Executive Officer (CEO). However, the section below refers to the 'Managing Director', consistent with the APC Act.
5.18
The Maddocks review found that Australia Post uses a series of delegations issued by the Managing Director under section 93 of the APC Act (the section dealing with delegating the powers of Australia Post) to established 'its system of internal controls'. This includes the Managing Director's delegation. Maddocks noted that the Board 'has not issued any delegations expressly under section 94 of the APC Act', which deals with delegating the Board's powers. Australia Post had however issued 'policies', including a General Delegations Policy, policies on reward and recognition and policies on credit card use. The Board had also limited the Managing Director's authority 'by requiring Board approval for transactions exceeding certain amounts'.
5.19
Maddocks noted that the policy document, Delegations made by the Managing Director, was in force at the time of the purchase of the watches. This policy stated that '[t]he Managing Director delegates the authority set out in this document severally to Australia Post employees in the specified positions pursuant to section 93 of the APC Act'. The policy also stated that Managing Director 'is authorised for card expenditure only in accordance with the applicable policy and standards of Australia Post'.
Relevant policies
5.20
The Australia Post policies Maddocks considered in relation to the purchase of the watches included:
the Group Remuneration Policy;
the Group Credit Card Policy.
Group Remuneration Policy
5.21
Maddocks considered if the watches fit into any of the categories of possible remuneration contained in the Group Remuneration Policy. The closest comparator was the Executive Short Term Incentives (STIs). These are payments used by Australia Post to reward Executive Group Managers and Group Executives 'for delivering financial performance, non-financial performance and individual leadership and safety management'. STIs are awarded based on performance over the course of a financial year in relation to set objectives. Maddocks ultimately determined that the STI provisions 'do not apply to the Watches and are implemented through a separate performance review process'. Maddocks also noted that 'three of the Watch Recipients also received STI payments in the same year as the Watches'.
Applaud Program
5.22
The Applaud Program was in place in 2018, at the time the watches were purchased, but has since ceased. The program sought to 'recognise, and be recognised for, behaviours that demonstrated the Australia Post shared values'. It provided 'points', which could be 'redeemed to obtain a reward such as a gift card, voucher, donations, or Qantas points'. Maddocks found that the Applaud Program did not apply, and 'was used for rewards of a significantly lesser value than the Watches'.
The Group Credit Card Policy
5.23
The relevant Group Credit Card Policy stated that 'a credit card is a delegation to spend up to the credit card's transaction and card limit' and that, 'in obtaining a credit card, an employee gains a delegation'. Maddocks reported that it was 'unclear whether this "delegation" articulated in the Group Credit Card Policy is a delegation that has been made by the Board under section 94 of the APC Act or by the Managing Director under section 93 of the APC Act'.
5.24
The Group Credit Card Policy describes the use of a credit card 'for certain business expenses' as 'approved use'. Maddocks identified only one category of 'allowable business expenses' that the purchase of the watches may conceivably have fallen under. This category was 'other authorised business transactions not prohibited or excluded under this policy'. Maddocks stated: 'This would require the purchase of the Watches to be characterised as a "business transaction" which had been 'authorised''.
5.25
Australia Post submitted the Group Credit Card Policy that was in place at the time the watches were purchased. The policy stated that corporate credit cards 'are an efficient means of paying for certain goods and services, such as travel and entertainment and general low value expenditure not available through other channels'.
5.26
According to the Policy, 'it is the responsibility of the card holder's manger to monitor for correct usage'. The committee understands that, when Ms Holgate was CEO and Managing Director, Mr Stanhope, as Chair of the Board, was considered to be her manager for the purposes of accountability under the Group Credit Card Policy. This clause in the policy is not mentioned in the Maddocks report.
5.27
The credit card used to purchase the watches was a card for 'the Office of the CEO', with a limit of $150 000. Maddocks noted that the Group Credit Card Policy stated that 'the person whose name appears on the card is the only person authorised to use that credit card', and that, at that time, 'it appears that the Card Holder of the Office of the CEO credit card was the Purchaser'.
5.28
Ms Holgate and others have interpreted Maddocks' findings as evidence that Ms Holgate had authority to provide rewards or incentives up to $150 000 in value. This was disputed by Australia Post. The Chair, Mr Lucio Di Bartolomeo said:
…despite Ms Holgate's assertions, she had no specific authority to spend $150,000 on individual rewards for staff. Maddocks identified no such authority in their investigation report, and their only reference to that figure was the limit on the office of the CEO credit card.
5.29
However, Mr Stanhope supported Ms Holgate's testimony that the purchase of the watches was 'within her authority'. Mr Stanhope said, 'she had a delegation that she was able to exercise. There was no monetary limit put on that. She had a delegation...' Asked if he remembered the amount, Mr Stanhope said:
I think it was a fairly large amount, like $150,000, for expenses. Whether there was a specific amount for gifts, I can't recall. Certainly, the money she spent per person was within her delegation.
5.30
In relation to Australia Post policy, Maddocks concluded:
Based on the information available, there are no specific policies or apparent controls that have been (or were in 2018) implemented by the Board regarding the giving of internal gifts, reward or recognition which is in the nature of the Watches (that is, a luxury good or service). All non‑executive Board members interviewed accepted that giving of gifts in the nature of the Watches was not appropriate.
5.31
It is noted that, while Australia Post had a policy in place at the time relating to Gifts, Benefits and Hospitality, it was not relevant to the purchase of the watches, as the purpose of the policy was 'to promote an ethical approach to dealing with all stakeholders and to protect the reputation of [Australia Post] and its people from real or perceived influence from suppliers and customers'.
5.32
Despite finding there was no policy to specifically support the purchase of watches as a reward for staff, Maddocks found that: 'there is no indication of dishonesty, fraud, corruption or intentional misuse of Australia Post funds by any individual involved in the matters relating to the purchase and gifting of the Cartier watches'.
5.33
When questioned, Mr Di Bartolomeo confirmed: 'There were no policies that she contravened. There's no doubt about that'.
5.34
Importantly, Maddocks also expressed concerns around Australia Post's 'internal controls support', questioning:
…the adequacy of the policies or controls that have been (and were in 2018) implemented by the Board regarding:
decisions by the CEO regarding discretionary expenditure by the CEO or the Office of the CEO;
the approval of expenditure using the CEO credit card and the Office of the CEO credit card.
…[and] whether Australia Post's internal controls support…the 'efficient, effective, economical and ethical use and management' of its relevant money.
5.35
The performance of the Board is discussed further in Chapter 8.
Acquittal and reporting
5.36
The credit card charges were 'signed and approved' on 31 December 2018 by the former Chief Financial Officer (CFO). Maddocks reported:
The former CFO stated that while the presentation of the Watches was unusual, she approved the charges for the purchase of the Watches for the following reasons:
(a)
the purchase was within the CEO's delegation for expenditure and an invoice had been provided in accordance with standard practice
(b)
the CEO had explained to the former CFO the reason for the purchase as being recognition for the efforts of the Watch Recipients, who had delivered a significant commercial benefit to Australia Post
(c)
the former CFO had observed the presentation of the Watches to the Watch Recipients
(d)
the former CFO believed that the former Chair had a degree of understanding regarding the provision of at least a recognition award to the Watch Recipients given that, to the best of her recollection, he had provided a thank you note to the Watch Recipients and he had been briefly present during the presentation of the Watches.
5.37
Maddocks noted that Australia Post paid Fringe Benefits Tax for the watches in January 2019 and that 'each of the Watch Recipients received a letter from the Head of Taxation at Australia Post setting out the Reportable Fringe Benefit Amount on their respective Watch'.
5.38
Ms Holgate noted in her submission that the expenditure was 'signed off by the auditor', and was known to a number of experienced personnel at Australia Post, none of whom raised concerns:
…at no point did anyone, including Board members, auditors or anyone in the Department of Finance who regularly reviewed our accounts, raise any concerns over this choice of a gift. Two of the recipients were in the same team as the Company Secretary and the General Counsel. The General Council had worked in the organisation for over 15 years at the time. The CFO, as I recall, had worked at Australia Post for seven years. All of these people were very familiar with governance and worked closely with me and the shareholder. All supported the acquisition at the time. The annual report and accounts for this period were signed off by the current CFO and Acting CEO, Rodney Boys as well as the Board and I. Several current directors were on the Board at the time of this agreement, including Jan West, Chair of the Risk & Audit Committee, Bruce McIver, Michael Ronaldson and Deidre Wilmott.
5.39
The Department of Infrastructure, Transport, Regional Development and Communications (Department of Communications) submitted that 'the value of the Watches was reported in Australia Post's 2018–19 Annual Report', and that Australia Post's annual reports are:
reviewed by the Department of Communications;
tabled by the Minister in the Parliament;
published on the Government Transparency Portal, and agency and organisation websites; and
subject to review by the Australian National Audit Office.
Concerns with the credit card approval process
5.40
Maddocks noted, and expressed concern, that the approval of expenses and the acquittal process for expenditure using the CEO credit card and the Office of the CEO credit card appeared 'to involve approval for such expenditure being given by the CFO, a direct report to the CEO'. Maddocks reported that the CFO approved the purchase of the watches with the Office of the CEO credit card, and commented:
…an employee in a subordinate role to the CEO appears to have been approving expenditure by the CEO using the CEO's credit card and expenditure using the Office of the CEO credit card. The risk is that, as a direct report to the CEO, the CFO may not be able to be an effective 'check and balance'. Accordingly, there is a risk that this arrangement is not 'effective' or appropriate.
5.41
Mr Stanhope was asked to comment on this approval relationship. He claimed that when he began at Australia Post he was told he could not approve the CEO's expenses because he was not 'technically an employee.' Mr Stanhope said:
When I arrived that wasn't happening [the CEO's expenses being approved by the Chair]. I asked the question. I was told by the then company secretary that because I wasn't technically an employee I couldn't. So I accepted that… My recollection…is that when I started the company secretary approved the CEO's expenses. Then it moved to the CFO. I've been on boards for 30 years, in various places, and being an ex-Telstra person for a long time I'm very familiar with [GBEs]. When I arrived, it was unusual that I didn't approve the CEO's expenses. I asked the question, as you would hope I did.
5.42
The current Chair, Mr Di Bartolomeo, told the committee:
[T]he CEO's expenses should be approved by the chair, which is normal practice for me and other boards that I chair. In Australia Post the practice had been that the CEO's expenses were approved by the CFO—inappropriate.
5.43
Significantly, the Maddocks review concluded that there did not 'appear to be an adequate policy or mechanism for the acquittal or authorisation of discretionary expenditure by the CEO or the Office of the CEO, including expenditure incurred on Australia Post credit cards'.
5.44
The committee notes that Australia Post has since conducted a review into its 'control environment relating to credit cards, conflicts of interests, and gifts, benefits and hospitality'. The review identified 32 recommendations for improvements. One of the recommendations, which has already been actioned, was that credit card transactions of the Group CEO and Managing Director are now 'reviewed and signed off by [the] Chair', and that a report on credit card expenses will be provided to the Board every six months.
The PGPA Act
5.45
The PGPA Act requires Australia Post's Board, as the accountable authority, to 'govern the entity in a way that…promotes the proper use and management of public resources for which the authority is responsible'. Guidance to the PGPA Rule clarifies that 'proper use' means 'the efficient, effective, economical and ethical use of the money'.
5.46
The Maddocks review found that:
The purchase of the Cartier watches was inconsistent with the obligation imposed by the PGPA Act on the Board relating to the proper use and management of public resources (section [15(a)] of the PGPA Act) and was inconsistent with public expectations in relation to the use of public resources due to:
(a)
the absence of a clearly identifiable and directly applicable policy, authorisation, direction or accountable authority instruction issued by the Board that supported the expenditure
(b)
the unanimous view of the non-executive Board members interviewed that they would not have approved the purchase of the Cartier watches
(c)
a technical breach of section 18 of the Public Governance, Performance and Accountability Rule 2014 (PGPA Rule), which is partly the result of the issue in paragraph (a) above
(d)
expenditure using the Office of the CEO credit card being approved by the Chief Financial Officer, a role subordinate to the Group CEO & Managing Director, being inconsistent with the requirement in section 16 of the PGPA Act that the Board, as the accountable authority, establish and maintain an appropriate system of internal control for Australia Post.
5.47
To be fully compliant with the PGPA Act, any approval to spend Australia Post's funds must be 'recorded in writing' and 'approved (and recorded) consistently with any delegation, authorisation, direction or accountable authority instruction issued by the Board'. Maddocks did not identify any 'written approval of a commitment of expenditure given by the Board or an individual Board member' for the watches, or 'any relevant policy authorising…the expenditure'. Maddocks said this was 'indicative of [a] gap in the internal controls framework required to be established by the Board'.
5.48
Mr Andrew Jaggers, Deputy Secretary at the Department of Finance, stated that Maddocks had found the provision of Cartier watches as a reward 'had been a technical breach [of the APC Act]' and was 'inconsistent with the PGPA Act', because:
Spending under the PGPA Act has to be for a purpose that is an agreed purpose. I think the Maddocks report is pretty clear that there was no such proper purpose for this spending…
5.49
Each 'accountable authority' is responsible, Mr Jaggers explained, to 'make sure the spending is for the purpose that is agreed to'. Mr Jaggers also stated that the PGPA Act:
…doesn't set out a list of things that are okay and a list of things that are not okay…it's a matter of judgement, and it's a matter of judgement by the accountable authority at the time to ensure that it's a proper use and it's being used for the business purpose of that organisation. I couldn't pass judgement on particular items, but I would say that the proper use is a decision of the accountable authority.
5.50
Maddocks found there was 'a tacit acceptance' among Australia Post Directors and officials that the purchase and awarding of the watches 'was not consistent with public expectations of board members and executives of [Corporate Commonwealth Entities] and GBEs in their management of the enterprise'.
5.51
Mr Jaggers reported that, following the revelations about the watches, government business enterprises were asked to review their policies, processes and procedures in relation to gifts and rewards. In particular, Australia Post was 'given some directions or requests to tighten up their performance and their governance arrangements'.
5.52
The Department of Communications submitted that the government 'instructed the Board to review and update Australia Post's internal governance arrangements and financial controls to ensure compliance with its legislative obligations and reflect public expectations'. The Department reported that Australia Post conducted a review, 'identified areas for strengthening controls in relation to credit cards, conflicts of interests, and gifts, benefits and hospitality'. As previously noted, many of the 32 recommendations arising from the internal review have been actioned.
5.53
Chapter 8 of this report includes further discussion on the Australia Post Board and its accountabilities.
Public expectations
5.54
There was general agreement among inquiry participants that the provision of Cartier watches to already highly-paid executives did not meet public expectations in terms of how a publicly-owned commercial entity should function.
5.55
Ms Brooke Muscat, from the Community and Public Sector Union, told the committee that, despite reversing its initial position that Ms Holgate should step down over the watches, the union maintains:
…it was an opulent gift at a time when low-paid workers could barely pay their bills and bargaining had stopped and started and stopped and started, and now our members have had to face a pay freeze for a very long period of time.
5.56
Mr Di Bartolomeo said he saw 'the purchase of the watches as an error of judgement made in good faith'. He said the purchase of Cartier watches was 'the wrong call', but Ms Holgate's decision 'did not deserve the intensely critical and very public unilateral external condemnation'.
5.57
Not everyone was critical of the purchase. The Licenced Post Office Group (LPOGroup) submitted that licensees 'do not find any credibility to the claims that the 'pub test' says that the awards are in any way, appalling or disgraceful, or a waste of taxpayer money'.
5.58
Ms Holgate's submission included emails she had received from many members of the public praising her work at Australia Post. Most expressed the view that purchase of the watches had been blown out of proportion. One former senior executive of BHP Steel said that he had 'often handed out very expensive Omega watches when my subordinates had 25 years of service or given bonuses to employees for [exceptional] performance or business results'.
5.59
In her resignation statement, Ms Holgate has said she regrets the decision has become a distraction:
…I deeply regret that a decision made two years ago, which was supported by the Chair, to recognise the outstanding work of four employees has caused so much debate and distraction and I appreciate the optics of the gifts involved do not pass the 'pub test' for many.
5.60
However, Ms Holgate has also defended her decision to reward the recipients:
Am I proud of the moment that I gave those people recognition for working 24 hours a day? I think that's what you would want your CEO to do… I probably might buy them a Seiko watch in future, but I hope I never step away from recognising and rewarding outstanding people.
Committee view
5.61
The committee notes that the purchase of the four watches was in recognition of the highly significant Bank@Post refresh, which Australia Post submitted has increased revenues by approximately $216 million over four years. The committee also notes the significant flow on benefits that the Bank@Post deal has had for licenced post offices across the country.
5.62
Nevertheless, the committee is in broad agreement that the decision to give Cartier watches to already highly paid executives as a reward for securing the Bank@Post deal was regrettable. The committee notes that this point has been acknowledged by Ms Holgate.
5.63
It is completely understandable that average working Australians, many of whom have struggled financially during the pandemic, would consider it as inappropriate for someone who earns over $300 000 per annum to be further rewarded with a $5000 watch.
5.64
However, the committee is also of the view that the subsequent treatment of Ms Holgate for her regrettable decision, by both the government and certain representatives of Australia Post, was entirely disproportionate. Especially given that these purchases were widely known about and evidence was put to the committee by the former Chair, Mr Stanhope that the purchase was 'within her authority'. Mr Stanhope said, 'she had a delegation that she was able to exercise. There was no monetary limit put on that. She had a delegation...' However, this context was not explained at the time. The subsequent treatment of Ms Holgate is discussed further in Chapters 6 and 7.
5.65
The committee also supports the calls for Australia Post, and other corporate government entities, to adopt more responsible and economical gift, reward and recognition policies that demonstrate a genuine understanding of the fact that their resources ultimately belong to the people of Australia.
5.66
The committee notes the steps Australia Post has taken to improve its internal controls and approval processes, but notes that it has not made any changes to its remuneration structure, which incorporates generous bonuses for senior staff and other highly paid staff, as discussed below.
Comparison with other bonuses, rewards and remuneration
Executive remuneration and bonuses
5.67
The provision of Cartier watches to executives as a reward for hard work caused considerable public disapproval when it was revealed in Estimates in October 2020. However, many participants in the inquiry submitted that the watches, worth between $2000 and $5000, were of little consequence in comparison with other executive bonuses and remuneration across Australia Post and other Commonwealth enterprises.
5.68
As an example, Mr Shane Murphy, from the Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia (CEPU), said that in 2020-21 'corporate bonuses' of $77 million were paid to executives at NBN Co 'during the pandemic and the size of their employed workforce is one-sixth of Australia Post'.
5.69
Mr Murphy also said that STI payments given to executives at Australia Post during 2019—around $1 million to Ms Holgate and half a million each to a number of other senior executives—were 'absolutely disgraceful', adding:
…when you compare those extraordinary numbers, of hundreds of thousands of dollars in bonuses, the extraordinary bonuses paid to NBN in another government business enterprise—you've got to compare the apples with the apples.
5.70
Mr Di Bartolomeo was asked about the STIs and argued that executives at Australia Post 'don't receive bonuses'. The Chair said the STIs are part of their 'remuneration package', are based on performance, and form part of formal contractual arrangements; executives 'have a fixed amount and another amount that's available depending on performance'.
5.71
Figure 5.2 below shows the STIs paid to Australia Post executives in 2018, the year the watches were purchased.
5.72
The CEPU was asked to confirm that Australia Post workers also got a bonus during the pandemic. Mr Murphy said:
As part of the [Memorandum of Understanding] and discussions with Australia post…because the federal government wage freeze couldn't award workers a wage rise while they were working during the pandemic and they [were] paid a one per cent bonus, but far short of the value of a Cartier watch or a payment to executives of hundreds of thousands of dollars… We got a one per cent bonus… About $500 to $600.
Bonuses across the Commonwealth
5.73
Many Commonwealth agencies paid bonuses to their executives during the pandemic. Four days after Ms Holgate resigned, The Sydney Morning Herald published an analysis of the annual reports of 142 government entities, 'including departments, statutory authorities and government businesses', based on figures from their 2019–20 annual reports. The analysis revealed that 'a quarter of them paid bonuses to their top executive teams, for a total of more than $12.8 million'.
5.74
Twenty seven executives from these government entities were paid more than $100 000 'on top of their fixed pay'. The entities paying the highest bonuses were: NBN Co, Snowy Hydro, the Future Fund, the Commonwealth Superannuation Corporation, Western Sydney Airport developer WSA Co, CSIRO, submarine builders ASC, and the Australian Nuclear Science and Technology Organisation.
5.75
While many entities chose to show restraint during the pandemic, reducing executive bonuses by up to 20 per cent, the 'average bonus paid across all entities that used them was $96,391—one-fifth of the base pay—and the median was $45,777'.
Performance Bonus Review
5.76
On 12 November 2020, the Prime Minister agreed 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. The Review is being conducted by the Secretary of the Department of the Prime Minister and Cabinet, the Secretary of the Department of Finance and the Australian Public Service Commissioner.
5.77
The review looked primarily at 2018–19 data, as data from 2019–20 was considered to be atypical. Based on this data, 74 Commonwealth entities 'were identified as paying performance bonuses, and fifty-five of these were in scope for the review'. Key findings from the review were:
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.
Analysis of the 2019–20 figures 'validated these findings', but fewer entities paid bonuses that year, due to the pandemic.
5.78
The figures below provide a breakdown of the bonuses paid by the top paying entities in financial year 2018–19. The figures are separated into the following categories:
Key Management Personnel—Includes Secretaries, Chief Executive Officers (CEO), Deputy CEOs, Managing Directors, Senior Counsel, Company Secretaries, Chief Operating Officers. Staff under the Remuneration Tribunal's jurisdiction may fall under this category.
Senior Executives—An official other than Key Management Personnel, who is responsible for making decisions or having substantial input into decision making. This includes Senior Executive Service classifications under the Public Service Classification Rules 2000.
Other Highly Paid Staff—Employees with total accrued remuneration packages above $220,000 in 2018–19.
5.79
In relation to Australia Post specifically, the review noted that, while Australia Post did not pay bonuses to Key Management Personnel (including Senior Executives) in 2019–20, it increased:
…the quantum of bonuses paid to Other Highly Paid Staff in 2019–20 to $35.3 million, an increase of $10.1 million on the previous year. These bonus payments represent almost half of the $76.2 million total of bonuses reported [across all entities] in 2019–20.
The number of highly paid staff at Australia Post remained virtually the same, at around 500.
Recommendations of the review
5.80
The review's interim report recommended that guidance for accountable authorities should be developed that would take into account 'the various governance arrangements of entities including that some entities operate in a commercial environment'. The guidance would reinforce that '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'.
5.81
The interim report also recommended strengthening transparency 'through ongoing enhancements to the Transparency Portal and refining guidance to increase accuracy and consistency of entity reporting'. The Hon Ben Morton MP, then Assistant Minister to the Minister for the Public Service, agreed to the two recommendations of the interim report.
Comparison of CEO remuneration
5.82
The Department of Communications submitted that, in February 2017, following the resignation of former CEO, Mr Ahmed Fahour, the government 'placed the pay of Australia Post's CEO under the oversight of the Remuneration Tribunal'. An independent statutory authority established under the Remuneration Tribunal Act 1973, the Remuneration Tribunal sets the level of remuneration for Directors of the Australia Post Board.
5.83
The Board has a level of discretion to vary the CEO's remuneration. However, this is only 'from 10 per cent below to 5 per cent above the base salary determined by the Tribunal'. Ms Holgate's base annual salary in 2019–20 was $1.416 million. The Tribunal allowed an additional 'performance-based short term incentives component of up to an additional 100 per cent'.
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Ms Holgate provided the following analysis comparing total remuneration she received as CEO of Australia Post, against that paid to previous CEO, Mr Fahour in 2017, and that paid to Mr Stephen Rue, CEO of the National Broadband Network.
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Ms Holgate acknowledges there was significant public and political pressure to reduce remuneration for the CEO of Australia Post in line with Mr Fahour's exit from the organisation, but also notes:
Considering the significant complexity of the role leading an organisation of the size of Australia Post and my personal performance against targets set by the Board, the major variances with my own remuneration compared to my male colleagues, who led smaller businesses, demonstrates a significant issue. My remuneration in 2019 & 2020 was not just much lower than my predecessor, or my peer at NBN, it was lower than that of the male CEO leading Australia Post in 2008.
Gifts and rewards under the previous CEO
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A number of submitters, including the LPOGroup and Ms Holgate, said that gifts and rewards provided under the leadership of Mr Fahour had been much more significant, making the watches seem comparatively 'modest'.
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One of the watch recipients reportedly told Ms Holgate they had 'received a $50,000 bonus under a previous CEO'. Other employees told Ms Holgate that people had 'received watches for great performance for many years at Australia Post', that 'some had received cars and others spoke about trips to the Olympics paid for by the organisation'.
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Australia Post was asked to investigate these claims, and conducted a 'quick search'. The search identified 'a small number of non-financial rewards or gifts' provided while Mr Fahour was CEO. Australia Post determined that 'the provision of significant non-financial incentives [was not] a business as usual practice' under Mr Fahour's leadership. However, the review did identify the following examples.
Pens and smart watches
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A pen worth $2400 was purchased in August 2012 as a 'farewell gift given to Australia Post's then Chair'. Six $579 smartwatches were purchased in May/June 2015, which 'may have been given to senior executives as gifts or as workplace communication devices'; and a $1108 pen was purchased pen in July 2017, which 'appears to have been a farewell gift given to [an unidentified] staff member'.
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Mr Stanhope confirmed that, when he retired, he 'received a Montblanc pen', which he understood to have been approved by the Board as a 'gift'. Mr Stanhope said the pen was 'probably worth a couple of thousand dollars'.
Tickets to the London Olympics
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Australia Post provided on notice detailed information surrounding the staff 'trips to the Olympics', funded under Mr Fahour.
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The response confirmed that eleven Australia Post staff members attended the 2012 London Olympic Games, 'including three Australia Post staff members who worked in the Athletes' Village Post Office delivering mail to the Australian Olympic team'. The approximate spend on accommodation and airfares was:
accommodation, $150,000; and
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Australia Post staff stayed at the Sofitel St James in London, where other Australian corporate sponsors stayed, including Qantas. Approximate costs per person, per night, were $400, including taxes and breakfast.
A 'culture' that rewards gift-giving?
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Mr Stanhope was asked if there was 'a culture of excessive gift giving when [he was] the chair of Australia Post'. Mr Stanhope responded, 'I would say not'.
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When asked to confirm during a public hearing that the provision of non‑financial incentives by senior executives at Australia Post was 'business as usual', and this was 'not a unique situation', Mr Di Bartolomeo replied; 'I think the value of these gifts is a unique situation, but, you're right…'
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During the course of the inquiry, Australia Post held an event, which became the subject of questioning at a public hearing. The event was the 'Community and Consumer Leadership Awards event–known as the 'Isaacs'.
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Australia Post submitted that the event, named after Mr Isaac Nichols, the first Postmaster of the Australian postal service:
…recognises the work of our frontline and operational staff (ie post office, customer contact centre, and operations-focused office employees (eg marketing, digital and data), and over 90% of attendees at the event were frontline and operational staff.
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Australia Post maintained that the event, which cost approximately $360 000 excluding GST, 'builds engagement and collaboration across a large & diverse business unit with a diverse range of stakeholders and responsibilities'. Of the $360 000, 'approximately a quarter was for food, beverage and theming, and approximately half was for audio visual arrangements and equipment hire'.
Committee view
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The committee notes evidence suggesting a historical culture of gift-giving and rewards for senior staff at Australia Post. While GBEs gifting $2000 pens to retiring Chairs is to be discouraged, simply introducing a ban on non‑monetary rewards and incentives will not change the culture within these government businesses.
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Even more concerning to this committee is the sheer magnitude of bonuses and incentives paid to executives, senior managers, and other highly paid staff across the Commonwealth. According to the government's Performance bonus review—Interim report, Australia Post alone paid bonuses of $35.3 million to around 500 'other highly paid staff' in 2019–20—the financial year that ended in the midst of the pandemic—up $10.1 million from the previous year.
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Even during the pandemic and associated lockdowns of early 2020, a number of Commonwealth entities paid millions in executive bonuses. NBN Co's CEO, Mr Stephen Rue, was the highest paid government executive, at more than $3 million, including a $1.17 million bonus. Another $2.9 million in bonuses was shared between the other NBN Co senior executives.
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The terms of reference asked the committee to consider how the purchase of the watches compared with bonuses and gifts at Australia Post and other corporate government entities, such as the National Broadband Network. The interim report of the government's Performance Bonus Review shows that the use of bonuses is a significant issue across the Commonwealth.
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The committee recommends that the Australian Government strengthen the Performance Bonus Review (the Review) into Commonwealth entities by consulting with a wider selection of stakeholders and canvassing public opinion. The Review should seek to reform the way bonuses are used by Commonwealth entities to ensure the remuneration practices of these entities meet public expectations and conform to the Public Governance, Performance and Accountability Act 2013.
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In this context, committee members question the degree of moral outrage initially directed towards Ms Holgate for the purchase of four Cartier watches in 2018. As discussed in the next chapter, the Prime Minister's excessively strong criticism of Ms Holgate during Question Time on 22 October 2020 was a significant contributor to the intensity of the initial public response.
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The committee notes the findings of the Maddocks review, commissioned by the Shareholder Ministers. The review cleared Ms Holgate of any 'dishonesty, fraud, corruption or intentional misuse of Australia Post funds'. The committee notes also that Ms Holgate did not personally benefit from the purchase of the watches.
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Maddocks identified a 'technical breach' of the guidelines imposed by the PGPA Act—that all spending should be approved by the Board, or a delegated authority, or authorised under a specific policy issued by the Board, and approval should be recorded in writing. However, Maddocks also found that the purchase of the watches followed the usual processes in place for CEO credit card purchases at the time.
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The facts that there were no applicable policies in place, and that the approval and acquittal processes were non-compliant, are indicative of a failure of the whole Board, as elaborated in Chapter 8.
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Among other matters, the following chapters of this report consider why Ms Holgate is the only member of the Board who has been held to account for these failings.
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The committee recommends that the Australian Government conduct a review into the expenditure of corporate Commonwealth entities focussing on incentive payments, rewards, gifts and other discretionary expenditure, including short and long term incentives and other payments to highly paid staff, to ensure they meet public expectations and conform to the requirements of Public Governance, Performance and Accountability
Act 2013.