Matters being considered by the Tribunal in the making of ...

Matters being considered by the Tribunal in the making of its Determination of remuneration bands for executives employed in public service bodies

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The Victorian Independent Remuneration Tribunal (Tribunal) is required to make a Determination setting the values of remuneration bands for executives employed in public service bodies.

This Determination will take effect from 20 September 2019.

Under s21 and s24 of the Victorian Independent Remuneration Tribunal and Improving Parliamentary Standards Act (Vic) 2019 (VIRTIPS Act), the Tribunal is required to consider a number of matters prior to making a Determination:

• the roles of executives employed in public service bodies and the existingremuneration provided to executives under the Public Administration Act2004 (Vic) (PAA) as in force before the commencement of Part 7 of theVIRTIPS Act (s21(1)(a))

• any current statement or policy of the Victorian Government in relation toits wages policy (or equivalent) and the remuneration and allowances of anyspecified occupational group as defined in s3 of the VIRTIPS Act (s24(2)(a))

• the financial position and fiscal strategy of the State of Victoria (s24(2)(b))• current and projected economic conditions and trends (s24(2)(c))• submissions received in relation to the proposed Determination (s24(2)(d)).

In addition, the Tribunal is considering the remuneration of public service executives in other Australian jurisdictions and the remuneration of comparable positions in the private sector.

To assist interested parties to make a submission to the Tribunal on the proposed Determination, a summary of some of these matters is set out below.

The Tribunal has invited all persons and bodies to make a written submission in relation to the Determination of remuneration bands for executives in public service bodies. The closing date for making a written submission has been extended to 5.00pm on 6 November 2019.

The Tribunal also proposes to give persons and bodies the opportunity to make oral submissions in relation to the Determination of remuneration bands for executives in public service bodies. In addition, the Tribunal may invite specific

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persons or bodies to make oral submissions. Those wishing to make an oral submission are to advise the Tribunal by 5.00pm on 25 October 2019 by email to [email protected]. The details of the dates and locations for the making of oral submissions will be published on the Tribunal’s website.

All submissions will be published in full or in summary form as appropriate on the Tribunal’s website, unless the person making the submission seeks confidentiality or the submission contains information that is identified as commercially sensitive. In this instance, the submission will be published in a form which protects the confidentiality or commercial sensitivity.

Further information on how to make a submission is available on the Tribunal’s website.

1 Scope of the Determination Under the VIRTIPS Act, the Tribunal’s Determination will apply for executives employed in the following public service bodies:

• departments• Administrative Offices (AOs)• the Victorian Public Sector Commission (VPSC).

Departments

Departments are the primary policy advisers and program administrators for Ministers of the Crown and the Victorian Government. A department is the Minister’s principal source of advice and support on the operations of their portfolio of responsibilities. Each department is headed by a Secretary, appointed by the Premier of Victoria.

Following machinery of government changes that took place on 1 January 2019, Victoria has eight departments:

• Department of Education and Training (DET)• Department of Environment, Land, Water and Planning (DELWP)• Department of Health and Human Services (DHHS)• Department of Jobs, Precincts and Regions (DJPR)• Department of Justice and Community Safety (DJCS)

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• Department of Premier and Cabinet (DPC)• Department of Transport (DOT)• Department of Treasury and Finance (DTF).

Each department serves multiple Ministers, ranging from two Ministers (DTF) through to eight Ministers with ten portfolios (DPC).

Departments vary significantly in size and budget. For example, in June 2018 DPC had approximately 1000 full-time equivalent (FTE) staff and a budget of approximately $700 million, while DHHS had over 12,000 FTE staff and a budget of approximately $25 billion.1

Administrative Offices

AOs are public service bodies established by the Governor in Council under section 11 of the PAA. Under the PAA, AOs are established ‘in relation to a department’. AOs are not incorporated and do not have a separate legal identity.

Each AO is led by an AO Head, who is appointed by the Premier. AO Heads employ their own staff under the PAA and perform activities under the direction and control of Ministers. Under the PAA, both the AO Head and the Secretary of the portfolio department have reporting and oversight obligations in relation to the AO (table 1). As of October 2019, there are 14 AOs, with divergent roles and responsibilities (table 2).

Table 1: legislative responsibilities of AO Head and Secretary of portfolio department

Responsibility of the Secretary Responsibility of the AO Head

• responsible to the Minister for thegeneral conduct and the effective,efficient and economical managementof the functions and activities of thedepartment and AO

• advising the Minister on all mattersrelating to the AO

• responsible to the Secretary for thegeneral conduct and the effective,efficient and economical management ofthe functions and activities of the AO

• must advise the Secretary in all mattersrelating to the AO

• the AO Head has the same functions inrelation to the AO as a Secretary inrelation to a department

• an AO Head is not responsible to theSecretary for functions conferred on theAO by an Act other than the PAA

Source: PAA ss13 and 14.

1 VPSC, The State of the Public Sector in Victoria 2017-2018; State Government of Victoria, 'Budget Paper No.5,' Victorian Budget 2018/19, Department of Treasury and Finance: Victoria, May 2018.

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Table 2: Administrative Offices, at October 2019

AO Purpose

Family Safety Victoria Deliver family violence reform and drive action to end family violence

Latrobe Valley Authority Bring together local people, councils, industry, education providers and governments to secure the future of the Latrobe Valley

Local Government Inspectorate Dedicated integrity agency for local government in Victoria

Major Transport Infrastructure Authority

Oversee major transport projects in planning and construction

Office of Projects Victoria Provide quality advice to the Victorian Government on developing and building major infrastructure projects

Office of the Chief Parliamentary Counsel

Transform policy into legislation and advise the Victorian Government on its legislative program

Office of the Governor Provide support to the Governor of Victoria and her spouse in carrying out all aspects of their official duties for the benefit of the Victorian community

Office of the Victorian Government Architect

Provide leadership and independent advice to government about architecture and urban design and promote awareness about how good design can make great places for people

Public Record Office Victoria Maintain the archives of the State Government of Victoria, and manage these for use by the government and people of Victoria

Safer Care Victoria Work with patients, families, clinicians and health services to monitor and improve the quality and safety of care delivered across our public health system

Service Victoria The Victorian Government’s dedicated customer service delivery agency

Suburban Rail Loop Authority Design and delivery of the suburban rail loop project

Victorian Agency for Health Information

Analyse and share information across Victoria’s healthcare system, to help build an accurate picture of public and private hospital and health service performance

Victorian Government Solicitor’s Office

Provide legal advice and services to the Victorian Government and its entities

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Victorian Public Sector Commission

The VPSC is a statutory body, whose objectives are to:

• strengthen the efficiency, effectiveness and capability of the public sector inorder to meet existing and emerging needs and deliver high quality services

• maintain, and advocate for, public sector professionalism and integrity.

The VPSC is led by the VPSC Commissioner, who is appointed by the Governor in Council on the recommendation of the Special Minister of State.2

2 Executive workforce reforms The Tribunal’s Determination is part of broader VPS executive workforce reforms.

These reforms follow recommendations made by the VPSC in its Review of Victoria’s Executive Officer Employment and Remuneration Framework (the review).

The Tribunal is considering these broader executive workforce reforms as part of its Determination.

Classification framework

The VPSC has developed a new executive classification framework which is currently being rolled out across the VPS. The aim of the revised framework is to provide clarity on the expectations of executives and to set a consistent and transparent methodology for the assessment of executive roles, using tailored work value assessments.3

The revised framework maintains the existing structure of three bands within which executive roles are classified. However, these bands will be renamed and reordered to better reflect similar classification structures in other Australian jurisdictions (table 3). The bands classify executives within a Senior Executive Service (SES) level (1, 2 or 3). The responsibilities of each band remain largely the

2 PAA s43; Administrative Arrangements Order (No. 221) 2016.

3 VPSC, Executive Classification Framework, published 2019 https://vpsc.vic.gov.au/resources/victorian-public-service-executive-resource-suite/

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same. The revised executive classification framework is expected to be fully implemented by the end of 2020.

Table 3: executive classification framework (existing and revised)

Existing band Title Revised band Revised band score

EO-1 Deputy Secretary SES 3 48 to 56

EO-2 Executive Director SES 2 36 to 47

EO-3 Director SES 1 21 to 35

Source: VPSC Executive Classification Framework, 2019

Executive roles are classified into their respective bands by assigning a work value score. The roles are assessed against a set of competencies, and a score of 1, 3, 5 or 7 is assigned against each of the competencies. The final tally is a ‘work value score’ which employers should use when assigning a classification to a role, either newly created or existing.

The VPSC’s revised classification framework is a bespoke design, specific to the VPS. This means that it is not possible to compare roles to other jurisdictions or the private sector using the work value score.

Executive employment contract

The VPSC administers the standard VPS executive employment contract. The contract was updated in October 2018. As part of the update, the contract now requires employers to clearly set out the components of an executive’s remuneration package (base salary, superannuation, non-salary benefits). Previously, the contract only listed the total remuneration package (TRP).

This reform was designed to provide greater transparency to executives about how they are remunerated and addresses concerns about how changes to superannuation arrangements by the Commonwealth Government are implemented. Disaggregating TRP makes it easier to apply any adjustments in superannuation contributions resulting from increased superannuation contribution guarantees or increases in the maximum superannuation contribution base.

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3 Role of Public Service Body Heads Each public service body has a public service body Head:

• departments are headed by Secretaries• AOs are headed by AO Heads• the VPSC is headed by the VPSC Commissioner.

Public service body Heads are responsible for providing high level authoritative advice to Ministers, the Premier and other public sector stakeholders on policy, programs and operational matters.

They play a key leadership role within the Victorian government and nationally on matters relevant to their areas of responsibility and are expected to develop strategic relationships both within government and externally.

Public service body Heads, on behalf of the Crown, manage and employ staff in their public service body.4 They may be responsible for large multi-disciplinary workforces in complex environments and are expected to model the VPS values.

Secretaries of departments are the Minister’s primary adviser in relation to the operation of the public service body and the performance of its functions. Secretaries may also have responsibilities beyond their department. As shown in table 1, their responsibilities extend to the operation of AOs within their department’s portfolio.

Secretaries also have responsibilities in relation to their department’s portfolio public entities, including:5

• advising the Minister on matters relating to the public entity, including thedischarge by the entity of its responsibilities

• working with, and providing guidance to, public entities to assist the entity onmatters related to public administration and governance.

In addition to functions conferred on them by the PAA as public service body Heads, Secretaries may also have statutory responsibilities conferred on them under various Acts.

4 PAA s20. 5 PAA s13A.

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4 Role of executives Victorian Public Service executives are senior leaders responsible for delivering the government’s objectives for their organisation.6

In its 2016 review of executive employment, the VPSC noted that executives are:7

… accountable for: substantial budgets and assets, the management of considerable risks and are responsible for delivering a wide range of services and outcomes for the Victorian community.

There is no single role description of an executive in the VPS. The particular duties of each executive will vary depending on their role and employer. The VPSC’s revised executive classification framework notes that executive positions may include responsibility for one or more of the following:8

• large scale service delivery• the direction of program or project-based delivery functions• development or implementation of public policy• development and implementation of compliance and enforcement programs• the provision of expertise which ensures the integrity of decision-making and

planning processes of government.

6 VPSC, The State of the Public Sector in Victoria 2017-2018, 98. 7 VPSC, Review of Victoria’s Executive Officer Employment and Remuneration Framework Summary Report, August 2016, 12. 8 VPSC Executive Classification Framework, published 2019.

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The VPSC’s classification framework also notes that executive positions generally require eight core competencies (table 4).

Table 4: core competencies of VPS executives

Competency Definition

knowledge level of required knowledge; skills and expertise; proficiency in a specialised discipline; level of authority; depth of understanding of the work environment

relationships requirement to influence and negotiate; interact with internal and external stakeholders; level of sensitivity and complexity of issues and interactions

judgement and risk level of required judgement and degree of ambiguity inherent in the role; degree to which role must consider alternative courses of action; level of risk to be mitigated

independence requirement to make decisions without support; authority and freedom to plan objectives; requirement to contribute to or lead whole of entity strategic direction

strategic change extent of responsibility for significant strategic change management or reform agenda; contribution to business improvement; impact and complexity of change

impact scope of role’s impact within an organisation, into the sector, across state, national or international impact

breadth diversity of activities; geographical breadth of responsibility; variety of products and services to be managed by the role

resource management number of staff and size of resources and budget

Source: VPSC Executive Classification Framework, published 2019

While executive roles differ, there are some common components, including:

• setting the strategic direction for their area of responsibility• contributing to the leadership and continuous improvement of their unit by

making decisions about the way goals are achieved and priorities are set• providing authoritative advice and support to their agency Head, Ministers

and the broader public sector• managing and maintaining close liaison and effective relationships with

stakeholders including both with government and non-government bodies.

In undertaking their roles, VPS executives may be expected to represent their department or agency on high-level inter-agency committees, multi-disciplinary teams and special task forces.

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Executives may also be responsible for the management of business units or teams of employees. Tasks related to management include human resource functions, information communications technologies operations, and financial matters such budget management.

5 Executive employment and remuneration structures The employment of each VPS executive is governed by a contract of employment with their employer. Executives are employed by the relevant public service body Head. For example, executives in DPC are employed by the Secretary of DPC.

VPS executives are employed under a three-tier classification and remuneration framework. Executives are assigned to one of three executive officer (EO) classifications, EO-3 (lowest), EO-2 and EO-1. The framework does not apply to public service body Heads.

Executives are employed under Division 5 of Part 3 of the PAA, which provides for some terms and conditions of executive employment. For example, the PAA provides that executives must not be employed under a contract for a term of more than five years. However, contracts may be varied at any time and executives may be reappointed in the same role.

Many of the terms and conditions which apply to non-executive staff under the VPS enterprise agreement, also apply to executives employed in public service bodies.

Table 5 summarises the common terms and conditions that apply to the employment of all VPS executives.

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Table 5: summary of key employment conditions for VPS executives

Provision Conditions

Contract term Maximum contract term is five years

Performance management

All executives must have a written performance plan that must be reviewed by the employer at least once a year

Reimbursement Reimbursements may be available for:

• necessary and reasonable relocation expenses• travelling and personal expenses• telephone expenses, if the executive is required to make official calls

or be available by phone outside normal working hours• living away from home expenses if the executive lives away from

their usual place of residence for a short-term assignment

Paid leave 20 days annual leave per year 15 days of personal/carer’s leave per year 14 weeks parental leave for a primary caregiver, or 4 weeks parental leave for a secondary caregiver Minimum 3 days compassionate leave per event 20 days family violence leave per year For every 10 years continuous service, 3 months long service leave

Termination An employer can terminate a contract at any time (‘at will’), without showing cause, subject to providing the executive four months’ notice or pay in lieu of notice Where the reason for the termination is based on a serious failure by the executive in fulfilling their duties and responsibilities, then an employer can terminate the contract subject to four weeks’ notice* or pay in lieu of notice An employer may terminate an executive’s employment with immediate effect without notice if the executive commits any act of serious misconduct

Right of return Individuals that were non-executive VPS employees immediately prior to their employment as a VPS executive are provided with a ‘right of return’ under s27 of the PAA. The right of return applies in cases where an executive’s contract is terminated for reasons other than misconduct, or at the expiry of their executive contract. The executive is entitled to be employed at the highest applicable non-executive VPS level.

* Note: five weeks’ notice is required for executives over 45 years old and with more than five years continuous service. Sources: PAA; VPS Executive Handbook published 2019; VPS Executive Employment Contract published 2018

The executive remuneration bands are expressed as a total remuneration package (TRP), inclusive of salary, superannuation, any other employment benefits and any applicable fringe benefits tax. Executives may also enter into

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salary sacrifice arrangements.9 Remuneration for executives is set by employers according to the relevant executive band (table 6).

Table 6: VPS executive remuneration bands as at 1 July 2019

VPS Bands Minimum TRP

$ Maximum TRP

$

EO-3 185,711 240,789

EO-2 214,883 343,938

EO-1 312,274 457,081 Source: VPSC, “Victorian Public Service Executive employment” https://vpsc.vic.gov.au/executive-employment/victorian-public-service-executive-employment/

At 30 June 2018, around 85 per cent of VPS executives received a TRP less than $300,000 per annum (p.a) (figure 1), and the median TRP was $223,953 p.a.10

Figure 1: TRP distribution of VPS executives (exclusive of public service body Heads), at June 2018

Source: VPSC, The State of the Public Sector in Victoria 2017-2018.

The remuneration ranges for each of the bands overlap. According to the VPSC’s review, the overlap of the remuneration bands was not part of the original band design. It has arisen over time due to a practice of applying the annual remuneration increase to the top but not to the base of the band.11

When the executive remuneration band framework was developed in the 1990s, Secretaries were classified and remunerated within the EO-1 classification.

9 VPSC, Victorian Public Service Executive Employment Handbook, 2019, 21.

10 VPSC, The State of the Public Sector in Victoria 2017-2018, 12. 11 VPSC, Review of Victoria’s Executive Officer Employment and Remuneration Framework Summary Report, August 2016, 21.

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38

18

84

1 1 10

5

10

15

20

25

30

35

40

$150,000 -199,999

$200,000 -249,999

$250,000 -299,999

$300,000 -349,999

$350,000 -399,999

$400,000 -449,999

$450,000 -499,999

$500,000plus

Exec

utiv

es (%

)

TRP per annum

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However, the remuneration framework changed over time and Secretaries are no longer classified within the band framework.

There is currently no structure or set remuneration range for Victorian Secretaries (including no minimum or maximum remuneration). There are also no bands or tiers for Secretaries and there is no formal relationship between Secretary remuneration and subordinate executive remuneration.

The remuneration of Secretaries of departments and the VPSC Commissioner ranges from around $525,000 to around $650,000 p.a.

Reflecting the diverse range of roles and responsibilities, the remuneration of AO Heads ranges from around $210,000 to $750,000 p.a.

Changes in VPS executive remuneration

The Tribunal is examining changes in VPS executive remuneration, including by comparing movements in EO bands against movements in non-executive remuneration and in consumer prices and employee wages in Victoria.

The Premier of Victoria sets a remuneration guideline rate each year, and employers may increase the TRP of individual executives by up to the guideline rate. Under the standard VPS executive contract, the remuneration of executives is to be reviewed at least on an annual basis, although a review does not guarantee any increase in remuneration.

The VPS EO bands have been adjusted each year in accordance with the Premier’s guideline rate. Over the last ten years, several additional adjustments have been made to the EO bands and to the arrangements for executive remuneration.

From 2016, bonus opportunities are being phased-out from VPS executive contracts. This followed the VPSC’s executive employment review, which found that bonus arrangements did not drive performance. Existing VPS executives were offered a 4 per cent increase in their TRP in return for the removal of the bonus opportunity from their contract. Bonus opportunities were also removed from new executive contracts, and bands were adjusted by 4 per cent.

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Table 7 provides a summary of the adjustments made to the EO remuneration bands since 2009.

Table 7: changes to VPS executive remuneration bands, 2009 - 2019

Year Changes to remuneration bands

2009 Bands increased by 2.5% based on Premier’s guideline rate.

2010 Bands increased by 3% based on Premier’s guideline rate.

2011 Bands increased by 2.5% based on Premier’s guideline rate.

2012 Bands increased by 2.5% based on Premier’s guideline rate.

2013 Bands increased by 2.5% based on Premier’s guideline rate. Top of bands increased further by 0.23% due to increase in the Commonwealth’s superannuation guarantee rate.

2014 Bands increased by 2.5% based on Premier’s guideline rate. Top of bands increased further by 0.23% due to increase in the Commonwealth’s superannuation guarantee rate.

2015 Bands increased by 2.5% based on Premier’s guideline rate.

2016

• Bands increased by 2.5% based on Premier’s guideline rate.• Bonus opportunities phased-out from VPS executive contracts.

Executives with a bonus provision in their current contract offereda 4% increase in TRP if they agreed to the removal of the bonusprovision from the contract. Bands increased by 4%.

• The base of the EO-3 band increased to $175,000, removing theoverlap with the top of the band for VPS-6 non-executive staff.Pay of VPS executives paid below $175,000 increased to thebottom of the band.

2017 Bands increased by 2% based on Premier’s guideline rate.

2018 Bands increased by 2% based on Premier’s guideline rate.

2019 Bands increased by 2% based on Premier’s guideline rate. Sources: Department of Premier and Cabinet; VPSC State of the Public Service reports for 2009/10, 2010/11, 2012/13, 2013/14, 2015/16, 2017/18 and 2018/19.

Non-executive VPS wage movements

Non-executive VPS employees are classified and remunerated in accordance with a structure set out under the VPS enterprise agreement in effect at the time. The salaries of non-executive VPS employees are adjusted each year in-line with rates set out in the enterprise agreement.

Between July 2009 and July 2019, non-executive remuneration (based on enterprise agreement adjustments) has risen by 34.6 per cent in nominal terms, while executive remuneration (based on the Premier’s guideline rates) has risen by 26.8 per cent in nominal terms.

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Table 8 compares salary adjustments for non-executive VPS employees with the Premier’s guideline rate for executives.

Table 8: remuneration adjustments for VPS executives and non-executives, 2009 - 2019

Year VPS non-executive salary increases

% Executive TRP increases

%

2009 2.00 2.50

2010 4.50 3.00

2011 0.00 2.50

2012 3.25 2.50

2013 2.75 2.50

2014 3.25 2.50

2015 3.25 2.50

2016 3.25 2.50

2017 3.25 2.00

2018 3.25 2.00

2019 3.25 2.00

Sources: Department of Premier and Cabinet; VPSC State of the Public Service reports for 2009/10, 2010/11, 2012/13, 2013/14, 2015/16, 2017/18 and 2018/19; Victorian Public Service Agreement 2006 [AG847284 varied by PR987723], Victorian Public Service Workplace Determination 2012 [AG895510], Victorian Public Service Enterprise Agreement 2016 [AG2016/2919].

In its 2016 review of executive employment, the VPSC noted that the bottom of the EO-3 band overlapped with the top of the VPS-6 band for non-executive employees, and this acted as a disincentive to VPS staff moving into the executive workforce.12

Based on the VPSC’s recommendation, the bottom of the EO bands was increased to $175,000 in late 2016, to remove the overlap. Since then, the EO bands have increased by 2 per cent per annum, while the VPS bands increased by 3.25 per cent per annum. If that trend continues and taking into account that EO bands are inclusive of superannuation while the VPS bands are not, the top of the VPS-6 band will exceed the bottom EO band by 2024 (figure 2).

12 VPSC, Review of Victoria’s Executive Officer Employment and Remuneration Framework Summary Report, August 2016, 3.

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Figure 2: projected overlap between bottom of EO-3 band and top of VPS-6 band

Movements in wages and prices

The Tribunal is comparing changes in the EO bands over the last 10 years against movements in consumer prices and employee wages in Victoria.

The measure used by the Tribunal to consider changes in prices is the Melbourne Consumer Price Index (CPI). Since July 2009, the Premier’s guideline rate for executive TRP increases has averaged 2.4 per cent, compared to average annual CPI growth of 2.2 per cent.13

For changes in wages, the Tribunal compared changes in the Premier’s guideline rate to two variables:

• Victorian Wage Price Index (WPI) — measures changes in wages paid for agiven unit of labour, where quality and quantity of that unit of labour are heldconstant14

• full-time average weekly ordinary time earnings (AWOTE) of Victorian adults— provides an estimate of average wages in the community.

Between July 2009 and July 2019, executive TRPs (based on the Premier’s guideline rate) have risen by a total of 26.8 per cent in nominal terms. Over the same period, the WPI increased by 31.8 per cent in nominal terms (figure 3).

13 ABS, Consumer Price Index, Australia, cat. 6401.0, June 2019. 14 ABS, “Wage Price Index Explanatory Notes,” Wage Price Index, cat no. 6345.0, June 2019.

140

150

160

170

180

190

200

2017 2018 2019 2020 2021 2022 2023 2024 2025

$ ('0

00)

Year

Top of the VPS-6 band Bottom of the EO-3 band

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Figure 3: executive TRP and WPI, 2009 – 2019, nominal change

Source: ABS, Wage Price Index, cat no. 6345, June 2019.

Figures 4 shows that between July 2009 and July 2019, AWOTE increased by 37.9 per cent in nominal terms.

Figure 4: executive TRP and AWOTE, 2009 – 2019, nominal change

Source: ABS, Average Weekly Earnings, cat no. 6302.0, 2019.

95

105

115

125

135

Inde

x, 1

00 =

200

9/10

Financial Year

WPI Executive TRP

95

105

115

125

135

145

Inde

x, 1

00 =

200

9/10

Financial Year

AWOTE Executive TRP

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6 Executive remuneration in other Australian jurisdictions The Tribunal is comparing the VPS EO bands with those in other Australian jurisdictions. For non-agency heads, remuneration arrangements vary across jurisdictions, for example:

• New South Wales and the ACT have a three-band classification andremuneration structure for executives.

• The Australian Public Service does not have formal remuneration bands forexecutives associated with its classification structure. Each department has itsown remuneration framework for executives.

• The Northern Territory has a five-band classification and remunerationstructure.

The bottom of Victoria’s lowest band ranks fifth highest out of the eight jurisdictions (table 9). In comparison, the top of Victoria’s highest band ranks third highest, behind only NSW and the Commonwealth.

A variety of methods are also used across Australia to classify and remunerate agency heads (e.g. Secretaries). For example, the ACT and NSW provide a top band exclusively for department Secretaries as part of their public service executive classification framework. In comparison, Queensland uses a classification framework for agency Heads, which is distinct from the classification framework used for other executives.

Table 9 compares remuneration for executives across other Australian jurisdictions, excluding heads of agencies or departments.

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Table 9: public service executive remuneration bands, jurisdiction comparison, at 1 October 20191,2,3

Jurisdiction Band 1 $

Band 2 $

Band 3 $

Band 4 $

Band 5 $

Min Max Min Max Min Max Min Max Min Max

VIC 185,711 240,789 214,883 343,938 312,274 457,081 n. a n. a n. a n. a

CTH4 190,933 428,327 216,686 664,748 243,540 713,899 n. a n. a n. a n. a

NSW 192,600 274,700 274,701 345,550 345,551 487,050 n. a n. a n. a n. a

QLD 162,471 182,75 191,269 222,277 226,609 259,283 268,409 320,047 n. a n. a

WA5,6 190,776 227,819 227,819 281,140 281,140 330,938 n. a n. a n. a n. a

TAS5 131,769 151,534 155,414 178,728 187,591 215,730 225,890 271,066 n. a n. a

ACT5 156,010 195,520 208,769 264,006 282,476 316,958 n. a n. a n. a n. a

NT 217,533 233,565 237,573 245,729 259,018 284,592 290,986 315,950 322,188 353,101

Notes: 1 Excludes bands reserved for agency/department heads. 2 South Australia has not been included as it does not publish its remuneration bands. 3 Bands are exclusive of variable remuneration (e.g. bonus opportunities). 4 The Australian Public Service does not have formal remuneration bands for executives — the figures provided in this table are the maximum and minimum amounts actually paid, based on most recently published data. 5 Salary range only (not Total Remuneration Package). 6 Western Australian bands included in the table are those for ‘special division’ executives, as the Tribunal considers they are the most relevant bands for comparison purposes. Sources: Australian Public Service Commission; NSW Statutory and Other Offices Remuneration Tribunal Public Service Senior Executive Determination 2019; Queensland Public Service Commission Directive 10/17; Western Australia Salaries and Allowances Tribunal Determination 2019; Tasmanian Department of Premier and Cabinet; Northern Territory Office of the Commissioner for Public Employment.

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7 Economic factors In accordance with the VIRTIPS Act, the Tribunal is required to consider the economic and fiscal conditions of the State of Victoria. In particular, the VIRTIPS Act requires the Tribunal to consider:

• current and projected economic conditions and trends (s24(2)(c))• the financial position and fiscal strategy of the State of Victoria (s24(2)(b))• any statement or policy issued by the Government of Victoria which is in force

with respect to its Wages Policy (or equivalent) and the remuneration andallowances of any specified occupational group (s24(2)(a)).

Current and projected economic conditions and trends

The VIRTIPS Act requires the Tribunal to consider current and projected economic conditions and trends. The Tribunal is considering both Australian and Victorian economic conditions.

Australian economic conditions

The Reserve Bank of Australia’s (RBA) Statement on Monetary Policy – August 2019 (RBA Statement) notes that the Australian economy is in a period of slow growth, ‘with subdued growth in household income weighing on consumption spending’.15

The RBA’s Statement forecasts that Australian Gross Domestic Product (GDP) growth is expected to reach about 2.5 per cent over 2019, around 2.75 per cent over 2020, and around 3 per cent over 2021. The Australian unemployment rate is expected to remain around its current level of 5.2 per cent, before declining to around 5 per cent in 2021. Wages growth is expected to remain low, and underlying inflation measures are forecast to remain at around 1.5 per cent for the rest of 2019, before increasing to around 2 per cent in 2020 and 2021.

15 RBA, Statement on Monetary Policy – August 2019, RBA: Sydney, 2019.

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Victorian economic conditions

The Victorian Budget 2019/2016 (Budget) reports the following economic outlook for Victoria:

• real (inflation-adjusted) Gross State Product (GSP) growth is forecast tomoderate to the trend rate of 2.75 per cent in 2019-20, driven by householdconsumption and supported by population growth, low interest rates, lowunemployment and accelerating wages growth

• employment growth is forecast to slow to 2 per cent in 2019-20 and 1.75 percent over the next four years

• the unemployment rate is expected to fall to 4.75 per cent in 2019-20 andgradually return to its estimated trend rate of 5.5 per cent by 2022-23.

Regarding price movements, Australian Bureau of Statistics (ABS) data show that the Melbourne CPI for 2018-19 grew by 1.8 per cent.17 The Victorian Budget 2019/20 forecasts annual growth in the Melbourne CPI of 2 per cent in 2019-20, gradually increasing to 2.5 per cent by 2021-22.

Regarding wage movements, ABS data show that, in 2018-19, the Victorian WPI increased by 2.6 per cent.18 The Budget forecast wage growth to rise to 2.75 per cent in 2019-20 and return to trend of 3.5 per cent over the next four years. AWOTE for adults in Victoria, increased by 2.3 per cent in 2018-19.19

Financial position and fiscal strategy of the State of Victoria

The VIRTIPS Act requires the Tribunal to consider Victoria’s financial position and fiscal strategy. The Tribunal is considering the Victorian Auditor-General Office’s financial report on Victoria’s finances, and the Budget.

Victorian Auditor-General Office’s financial report

The latest available Victorian Auditor-General’s financial report on the State of Victoria states that ‘the state continues to operate sustainably and is well positioned financially’.20

16 State Government of Victoria, 'Budget Paper No.2,' Victorian Budget 2019/20, Department of Treasury and Finance: Victoria, May 2019. 17 ABS, Consumer Price Index, Australia, cat. 6401.0, June 2019. 18 ABS, Wage Price Index, Australia, cat no. 6345.0, June 2019. 19 ABS, Average Weekly Earnings, Australia, cat no. 6302.0, February 2019. 20 Victorian Auditor-General’s Office, 2017–18 Annual Financial Report of the State of Victoria, tabled 24 October 2018.

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Victorian Budget

The Budget reports that the operating surplus is expected to be $1.0 billion in 2019-20, and to average $3.4 billion a year over the forward estimates. Revenue growth is forecast to moderate, increasing by 2.2 per cent in 2019-20, primarily as a result of weaker property market conditions which will impact state taxation revenue. Expense growth is forecast to be 2.3 per cent.

The Budget notes that significant government investment in infrastructure is expected, forecast to reach $14.2 billion in 2019-20, and to average $13.4 billion a year over the Budget and forward estimates. Net debt is forecast to stabilise at 12 per cent over the medium term, to accommodate the delivery of major transport projects and changes in accounting standards. The Budget reports that Moody’s Investor Services has stated that this level is ‘manageable within Victoria’s current AAA rating and stable outlook.’21

The Budget also includes several efficiency measures for Victorian Government departments, including that indexation of output funding will be aligned with the forecast inflation rate in 2019-20, and expanding the General Efficiency Dividend from 2020-21. The Government’s employee expenses are forecast to grow by an average of 3.7 per cent a year over the forward estimates, reflecting increases in the public sector workforce and changes in average remuneration levels resulting from enterprise bargaining agreements.

Victorian Government’s Wages Policy

The VIRTIPS Act requires the Tribunal to consider any statement or policy issued by the Government of Victoria which is in force with respect to its Wages Policy (or equivalent). Box 1 re-produces the Victorian Government Wages Policy and Enterprise Bargaining Framework (Wages Policy) which applies to departments and agencies in the Victorian public sector.22

21 State Government of Victoria, 'Budget Paper No.2,' Victorian Budget 2019/20, Department of Treasury and Finance: Victoria, May 2019. 22 Industrial Relations Victoria, ‘Victorian Government Wages Policy,’ Wages Policy and the Enterprise Bargaining Framework, Department of Premier and Cabinet: Victoria, 2019.

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8 Overview of themes from VPS executive consultation to date As part of its consultation process, the Tribunal distributed a questionnaire to all executives employed in public service bodies (total approximately 1,000) seeking their responses to ten questions:

1. What is your executive classification level?

2. What is your primary responsibility?

3. How long have you been an executive in the VPS?

4. What was your role immediately prior to your current role?

5. What motivated you to apply for your current role?

6. Please provide comment on any trends, or significant changes over the lastfive years that affect your role.

7. Please provide your views on VPS executive remuneration, for example, thecompetitiveness of remuneration structures in attracting and retainingsuitable executives in a public sector context.

Box 1: Victorian Government Wages Policy and Enterprise Bargaining Framework

The Victorian Government Wages Policy and Enterprise Bargaining Framework has three pillars:

• Pillar 1: Wages — increases in wages and conditions will be capped at a rate of growthof 2 per cent per annum over the life of the agreement. In practice this meansemployee wages and conditions will be allowed to grow at this rate.

• Pillar 2: Best Practice Employment Commitment — all public sector agencies will berequired to make a Best Practice Employment Commitment which will outline measuresto operationalise elements of the Government’s Public Sector Priorities that reflectgood practice within Government and can be implemented operationally or withoutsignificant costs.

• Pillar 3: Additional strategic changes — additional changes to allowances and otherconditions (not general wages) will only be allowed if the Government agrees that thechanges will address key operational or strategic priorities for the agency, and/or oneor more of the Public Sector Priorities.

A ‘Secondary Pathway’ is also available for public sector agencies whose current enterprise agreement reaches its nominal expiry date on or before 30 June 2020 which permits one annual wage and allowance increase capped at 2.5 per cent (instead of at 2 per cent).

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8. What do you consider to be relevant factors and comparators for informingthe determination of remuneration bands for executives in the VPS, and fordetermining the relativities between them?

9. What are your future career intentions?

10. Please provide any other comment or feedback in relation to your role, orVPS executive remuneration, that you consider relevant to inform theTribunal’s deliberations.

Consultation closed on 30 August 2019. The Tribunal received 242 responses or around a 25 per cent response rate.

Profile of respondents

The following points summarise the profile of respondents to the Tribunal’s questionnaire:

• 52 per cent of respondents were EO-3s, 39 per cent were EO-2s, and 8 percent were EO-1s.

• 31 per cent of respondents reported their primary responsibility was portfolioand program implementation, 24 per cent were in service delivery roles, 19per cent were in policy advice roles, 19 per cent were responsible forspecialist services and 7 per cent performed regulatory functions.

• 64 per cent of respondents had been an executive for less than 5 years, whilst20 per cent had been an executive between 5 and 9 years, and 17 per centhad served longer than 10 years.

• 32 per cent of respondents had been an executive in the VPS immediatelyprior to their current role, whilst 26 per cent had been a non-executive VPSemployee, 16 per cent had been an executive in the private sector, and 10 percent had been an executive or non-executive in the public sector in anotherAustralian jurisdiction.

• 63 per cent of respondents planned to remain an executive in the VPS orother Victorian public sector organisation in the next 5 years, whilst 16 percent planned to pursue an executive role in the private sector, and 7 per centintended to take on an executive role in the public sector in anotherAustralian jurisdiction.

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Motivation

• Over a third of respondents identified that the specific work of an executivemotivated them to apply for their current role. Many commented on the:o scope to work on interesting projectso ability to deliver services and change for Victorianso opportunity to bring their skills and expertise to the worko challenge of the role

• Around about 19 per cent of respondents identified the ability to bringchange, value and improvements to the Victorian community as a keymotivation.

• About 17 per cent of respondents also identified career progression as a keymotivation. Many considered the executive position an opportunity to:o progress their careero build on past experienceso further specialise their skills.

Trends or significant changes affecting role

• Nearly 20 per cent of respondents identified ‘higher expectations’ as one ofthe most significant changes over the last five years. Many commented onincreasing expectations to be:o available 24/7, and on weekendso supportive of staff and ministers due to their increased work and stress

• About 17 per cent identified an increased workload over the last five yearsand 12 per cent identified a broadening of government programs andagendas.

Views on remuneration package overall

• Just over a fifth of respondents compared their VPS salary to that of theprivate sector and concluded that it is lower.

• Almost 22 per cent considered their remuneration sufficient and identifiedthat the requirements of the role (generally 9-5, Monday to Friday) was themain reason for this.

• However, 9 per cent of respondents considered their pay insufficient overall,due to the workload.

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• Just over 11 per cent pointed out perceived ‘inconsistencies’ in remuneration,such as:o insufficient ‘gap’ between the top of the 6.2 VPS band and the bottom of

the executive remuneration bands — considered insufficient because ofdifferent levels of responsibility between the two roles

o overlapping remuneration bands — considered a problem when theremuneration of an executive with higher responsibilities (in a higherband) is not sufficiently higher than the remuneration of an executive ona lower band

o that the private sector could pay a person of similar expertise more —considered to imply that the current remuneration structure does notattract or retain talent

o VPS remuneration is lower than other jurisdictions (particularly the APS).

Relevant factors and comparators for informing the Determination of remuneration bands

• Almost 23 per cent of respondents suggested comparing VPS remunerationagainst equivalent roles in the private sector and other industries. Mostrespondents identified the need for the public sector to be competitive withthe private sector, and general market conditions.

• Other key factors identified were:o responsibility of the executive (around 20 per cent)o risk of the role (about 14 per cent)o number of staff managed (8 per cent)o size of the budget of the department (7 per cent).

• About 13 per cent of respondents also acknowledged that the relevantexperience and expertise of the executive should also be a factor indetermining an individual’s remuneration.