Important issues from the Remuneration Tribunal’s draft determination on CEO remuneration
On 20 January 2025, the Remuneration Tribunal (Tribunal) released a draft determination in relation to minimum and maximum remuneration for chief executive officers in the local government sector, following a substantial review of the inaugural determination issued in 2023.
The draft determination proposes a number of changes which may cause significant change to the way some councils are currently managing their CEO’s remuneration.
Whilst the draft determination is still open for consideration and submissions from interested parties until 12 March 2025, as it currently stands, it is anticipated that the determination will be issued ‘soon after’ and take retroactive effect from 1 January 2025.
Below are some of the key issues to take away from the draft determination which may impact upon your council.
Definition of remuneration
The report accompanying the draft determination acknowledges the difficulties many councils experienced in determining whether certain benefits provided to CEO’s constituted ‘remuneration’ for the purposes of the inaugural determination, or determining the value of certain benefits (in particular motor vehicles, where the methods used to calculate the cost of the vehicle and its private use components varied greatly between councils).
To clarify the new position of remuneration, the following table has been provided within the draft determination:
Component |
Definition |
Monetary remuneration |
Base salary (cash component). |
Superannuation |
Includes the statutory minimum employer contributions, any salary sacrifice component, and any additional payments made by a Council. |
Annual Leave Loading |
As defined in the relevant employment contract. |
Additional Leave Entitlements |
Dollar value of additional leave provided over and above statutory entitlement, except where this is provided to allow remotely based CEOs to travel to their hometown or capital city to commence / return from leave. |
Bonuses |
Dollar value of any bonuses or performance incentives, whether received in cash or kind. |
Motor Vehicle |
The value of the cash allowance or the private benefit value of the motor vehicle to the CEO using either the Prime Cost (depreciation), Operating Cost, or Statutory Formula in accordance with the ATO rules. Must include Fringe Tax Benefit (FBT) payable by the CEO. |
Housing Allowance |
The dollar value of any housing allowance or rental subsidy and associated FBT. Consistent with the ATO remote area fringe benefit tax requirements. Note, designated remote areas are exempt from FBT. |
Other Fees and Allowances |
Includes, but not limited to, any or all of the following: • School or childcare fees, including school uniforms • Newspaper/magazine/online subscriptions • Value of perquisites provided to the CEO i.e. memberships • 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 other allowances • Any other form of payment - cash or otherwise • Any FBT paid by council in respect of any of the above. |
Total Remuneration Package |
The total of all the above components. |
New remuneration bands
The Tribunal has undertaken a review of the band classifications initially set out in the inaugural determination. The new bands are based primarily on councils’ total operating revenue, but also take into consideration projected population growth, population dispersion, distance from Adelaide and socio-economic advantage/disadvantage.
This approach does not adequately take into consideration factors and challenges facing certain councils, most notably the difficulties in attracting and retaining CEO’s in regional and rural areas. However, alternative proposals for calculating remuneration were considered by the Tribunal to be dated or insufficient in characterising CEO functions and the complexity of the role.
The change to the bands means that the remuneration currently paid to some CEO’s will no longer fall within the band in which their council sits (significantly so, in a number of cases).
Given the potential implications, the Tribunal has provided a “Phased in Compliance” period where councils will have one year to ensure that their CEO’s remuneration falls within the new band (or two years if an increase or reduction of $5,000 or more per annum will be required).
In light of this new information, councils are urged to review their CEO remuneration and determine whether it is compliant. In navigating this space, it is expected that councils may be placed in a difficult position and could be posed with questions like:
- At what stage should the council take into account the draft determination when setting the CEO’s remuneration?
- Is the council calculating remuneration correctly? Are all relevant benefits being included within the calculation?
- How can the council decrease the CEO’s remuneration to comply with the determination?
- What happens if as a result of the determination, directors or general managers are being paid more than the CEO?
- How should the council accommodate the proposed annual reviews to the remuneration amounts in each band, and the proposed two-yearly review of whether councils meet the criteria to be within a band?
Whilst discussions around the above questions may be difficult, councils should be proactive to ensure that draft determination, if issued as expected, will not cause disruptions to council operations.
We are currently in discussions with the Local Government Association regarding the need for a sector wide response and we will continue to update the sector as this matter progresses.
Should you have any questions arising from this alert, please contact Sathish Dasan on +61 8 8210 1253 or sdasan@normans.com.au or Lincoln Smith on +61 8 8210 1203 or lsmith@normans.com.au.
