Remuneration Tribunal Determination - what it means for the CEO
30 June 2023
The fact of the Remuneration Tribunal delivering its much anticipated (and long awaited) Determination concerning the minimum and maximum remuneration for Local Government CEOs on 16 June 2023, is gaining significant interest.
Whilst the ‘banding’ of councils under the Determination is well understood, what will constitute ‘remuneration’ for the purposes of calculating the minimum and maximum remuneration package for each council CEO is less clear, particularly around the provision of a motor vehicle and how this is to be ‘factored’ into any package.
We have received numerous requests/enquiries with respect to the application of the Determination for incumbent CEO’s, particularly as it may apply in a CEO performance (and salary) review process, as well as for incoming CEOs, noting a number of councils are about to, or have commenced, or recently concluded, a CEO recruitment process.
We set out ‘high level’ advice on these issues for your assistance.
Application of the Determination
The Determination is operative from Saturday 1 July 2023.
Section 147(5), a transitional provision in the Statutes Amendment (Local Government Review) Act 2021, provides that the remuneration of a CEO who was holding office on the commencement of section 99A of the Local Government Act 1999, will not be affected by the Determination during their term of office.
Section 99A commenced on 20 September 2021. However, it has not had any work to do until the Determination was made and becomes operative (on 1 July 2023).
The effect of the above is that the Determination is relevant to any CEO Employment Agreement entered into after 20 September 2021, but only from the effective date of the Determination and not retrospectively to an earlier commencement date for an Employment Agreement.
In which case:
- a council will be required to remunerate a CEO who has entered into an Employment Agreement after 20 September 2021, but to commence in the role after 1 July 2023, in accordance with the Determination on the basis that in accordance with section 99A(10) of the Local Government Act 1999 (the Act), the Council ‘must ensure that the remuneration of its chief executive officer is within the relevant minimum and maximum remuneration determined by the Remuneration Tribunal …”;
- whilst not legislatively mandated, it is appropriate from a forward planning and good corporate governance perspective that any CEO remuneration review, usually consequent upon an annual performance review, has regard to the Determination in a remuneration package review;
- indeed, this position has express support from the Tribunal by reference to paragraph 78 of its Report where reference is made to increasing to within a band, or not increasing further, if the current package is above the band; and
- the extension of a term/a new contract is a ‘trigger event’ for the operation of section 99A(10) of the Act meaning that the council must ensure that its CEO’s remuneration package is within the minimum and maximum relevant band of the Determination.
The Tribunal notes in its Report, at paragraph 43, that councils can determine, within the minimum and maximum remuneration levels, the various components of the remuneration package, provided that the total remuneration arrangement falls within the minimum and maximum amounts set by the Tribunal. The Tribunal has determined the following components will constitute remuneration:
- monetary remuneration;
- superannuation (including statutory minimums and any salary sacrifice component and/or additional payments made by a council);
- additional leave entitlements and annual leave loading;
- bonuses and performance incentives (cash or otherwise);
- private benefit value of any motor vehicle and/or equipment (other than equipment specifically excluded, as below);
- school or childcare fees, including school uniforms;
- newspaper/magazine/online subscriptions;
- personal travel or any other benefit taken in lieu of salary by the CEO (and immediate family at the discretion of the council);
- health insurance;
- any and all allowances;
- any other form of payment (cash or otherwise); and
- any Fringe Benefits Tax paid by a council in respect of any of the above.
Against the above list of what will be considered ‘in’, the Tribunal has determined the following will not need to be taken into account for the purposes of the minimum and maximum remuneration levels:
- mobile telephones and portable computing equipment provided fundamentally for work purposes, but which may be used for reasonable personal use;
- professional development costs that directly relate to the performance duties;
- membership of professional associations related to the performance of functions; and
- one-off payments that relate directly and solely to relocation expenses.
Treatment of Motor Vehicles
The issue of the provision of a motor vehicle as part of a TEC package was more complex for the Tribunal, on account of the significant variations in arrangements amongst councils, reflecting different costing approaches, differences in motor vehicles, the extent to which motor vehicle use was for business purposes (and private usage) and Fringe Benefits Tax recognition.
Somewhat unhelpfully, the Tribunal has suggested the application of a consistent approach to motor vehicle costing arrangements for the future, based on actual annual cost of provision of a motor vehicle provided by the council, less an assessed component for business use, as an ‘appropriate approach for the future’.
However, what that means for councils (and CEOs) now, in light of the fact that the private benefit value of a motor vehicle is to be considered when calculating a TEC package within the allowable minimum and maximum remuneration band, is less than clear!
The answer, currently, is that in setting the minimum and maximum levels of remuneration, the Tribunal has a ‘built in’ an assumption that where the value of the motor vehicle and Fringe Benefits Tax is below $20,000, the Tribunal has added the difference to the total package of remuneration (i.e. if the council provides a value of $15,000 for a motor vehicle and Fringe Benefits Tax, then $5,000 is to be added the total package of remuneration).
It has been recommended that to the extent that councils negotiate new contractual arrangements, it is appropriate that motor vehicle costs that relate to all private use are separately recognised as remuneration components.
If your council, or CEO, has any questions with respect to the operation of the Determination, please contact:
Michael Kelledy on 08 8113 7103 or email@example.com; or
Tracy Riddle on 08 8113 7106 or firstname.lastname@example.org