Public sector bonuses to be dramatically slashed in federal government edict

Taxpayer-owned businesses, agencies and government departments have been ordered to dramatically cut back on the tens of millions of dollars in personal annual bonuses awarded to already highly paid public servants, following a review triggered by a series of scandals.

The federal government issued a new edict on Friday for all Commonwealth entities and companies over the payment of performance bonuses, warning that from now on they should be used in limited circumstances that are justifiable to the public and Federal Parliament.

Bonuses for highly paid public servants will be slashed.Credit: Karl Hilzinger

Independent remuneration panels have been told bonuses are not appropriate for most policy, service delivery, regulatory and corporate roles. Instead, they should only be rewarded for executives, managers or senior staff who are in a position that involves significant, at-risk investment outcomes, required to meet significant public milestones or in positions involving non-tax revenue raising.

In March last year, the government announced a freeze in senior executive pay rises because of the economic fallout from the COVID-19 pandemic. The Australian Public Service Commission also issued updated guidance to Commonwealth entities on senior executive bonuses, saying not to pay them unless there were “exceptional circumstances or a contractual obligation”.

The new expectation says Commonwealth entities and companies must “carefully target who is provided with the opportunity to earn a performance bonus” as part of their remuneration package.

It warned that performance bonuses must not be used to top-up remuneration packages and should not be paid for “adequate or satisfactory performance”.

“Performance bonuses should normally only be used in cases of high levels of performance and achievements greater than the inherent expectations of the position and within agreed risk parameters,” it reads.

The government ordered a review of performance bonus arrangements for public sector executives in November last year after a fierce public backlash to a series of massive taxpayer-funded bonuses paid out during the first recession in 30 years.

Four of the largest regulators and statutory authorities – The Reserve Bank, the Australian Competition & Consumer Commission, the Australian ­Securities & Investments Commission, and the Australian Prudential Regulation Authority – paid more than 1700 executives and other senior staff bonuses of $13.2 million last financial year, despite calls for restraint with taxpayer dollars during the coronavirus pandemic.

More than 700 highly paid employees at NBN Co, the taxpayer-owned body that runs and operates the national broadband network, received average personal bonuses of $50,000 last year. The corporation paid out almost $78 million bonuses to more than 3800 staff.

Australia Post, which lost its chief executive Christine Holgate after it was revealed she bought Cartier watches as a reward for staff, increased its bonuses paid to staff to $35.3 million.

Assistant Minister to the Minister for the Public Service, Ben Morton, said the new guidance reinforced the government’s expectation that government business enterprises and agencies should exercise “rigour and restraint” in the use of performance bonus payments.

“Commonwealth entities and companies exist to deliver outcomes for the public. They should act in line with community expectations regarding remuneration, regardless of their level of independence from the government,” he said.

Remuneration panels that remove or reduce bonuses for employees are encouraged to consider buy-outs, partial rolling into salary, allowing existing arrangements to expire or a combination of strategies. The directive says it is expected that where transition arrangements involve roll-ins, only a portion of the available bonus would be incorporated into salaries.

Mr Morton said the new guidance would set the right balance to compete in tight labour markets for senior specialist talent in certain roles, while ensuring transparency and accountability in remuneration practices and decisions.

“While the Commonwealth public sector employs people with a diverse range of responsibilities, skills and qualifications supporting the prosperity of Australians, Commonwealth entities and companies need to be accountable to the community they serve.”

He said the directive accounted for the fact some Commonwealth entities and companies operated in sectors and commercial environments where short-term incentives and variable pay was an expected component of a remuneration package for some occupations.

In November, a new pay deal with public sector workers was reached that would no longer have pay rises cushioned during recessions and instead be paid in line with private sector wages.

A removal of the 2 per cent wage increase cap on all Commonwealth public servants means public sector wages can now rise higher when private sector growth is above this level.

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