Anyone following the public hearings of the Banking Royal Commission would be aware of the reputational damage already caused to Banks and Insurance Companies including substantial customer and now shareholder losses, through breaches of policy and regulatory oversight, due in part to the wrongful payment of millions of dollars in salary bonuses to Senior Executives.  Shareholders are in revolt and in recent days Annual Meetings of major institutions have seen “First Strike” resolutions opposing executive bonuses and remuneration increases. Once beloved Gerry Harvey was astounded that his shareholders looked on the Board and its Executives as “crooks”.

Shareholders of Harvey Norman revolted against the level of remuneration paid to Executives

One cannot therefore blame local government for exercising a little caution when contemplating the introduction of bonuses as a feature for performance contracts for their CEOs/ Senior Management. Whilst Section 201 provides that Annual Reports must disclose:

  • the total of all remuneration packages payable to the CEO and senior management;
  • the number of employees in senior management who are being paid in each band of remuneration; and
  • each band of remuneration is an increment of $100,000.

 There is no legal obligation for disclosure in annual reports, of the various components that make up total remuneration packages i.e. the cash component, the value or provision of motor vehicles; Council provided houses; professional memberships; or annual bonuses. It is therefore difficult to ascertain the number of Councils where bonuses are a feature of remuneration packages which does not assist in defending criticism about lack of transparency concerning executive remuneration generally. Anecdotally there are relatively few bonus schemes in Queensland local government….largely because of two reasons

  1. Councils are generally conservative and do not see that extra effort on the part of senior staff should deserve extra pay…”after all” it is said “they are executive staff and should do whatever it takes to get the results for the base remuneration agreed on”.
  2. Many Councils find it a struggle to be able to implement a successful system of performance measurement and review to enable proper evaluation of that extra effort.

With the best intentions of openness and transparency, it is unlikely, that Councils paying bonuses to their CEO/ senior Management would release media statements during this Festive Season, publicly reporting on Annual bonuses paid for their outstanding performance.

The salary bonus minefield

One of the issues always at play in bonus schemes is the perception of value for money – which is so varied in the eye of the beholder. Setting meaningful targets able to be effectively measured is a constant challenge and often a source of argument. The effect of paying bonuses to one group and not to another is often a source of resentment and can generate destructive competition and in fact impede collaboration. Setting fair, equitable and reasonable core remuneration overall would seem preferable to the minefield of bonus payments.

If Council’s are reviewing performance of Senior Executives or engaged in Contract reviews, I encourage Councils/ CEO’s to review the LGAQ Legal Opinion   LO24:16 of 29 November 2016- “Senior Executive Employment Contracts; Variations; Extensions; Delegations” – An important opinion in understanding Councils and CEOs responsibilities in these important areas.

As well, I encourage readers to also look at an excellent blog of 14th October 2016, on the Reinforcements Website titled “Why don’t executive performance systems work?

If you are looking for experienced advice on issues covered here and facilitation on creating effective performance systems -call in Reinforcements.

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