New superfund remuneration reporting - BDO's FY24 analysis

For the year ended 30 June 2024, registrable superannuation entities (RSEs) were required to lodge financial statements with the Australian Securities and Investments Commission (ASIC) in the same way as companies, registered schemes and disclosing entities reporting under Chapter 2M of the Corporations Act 2001.

One of the most significant changes for RSEs has been to present a remuneration report for superfund executives for the first time.

James Dixon, partner, audit and assurance, has analysed the first iteration of this remuneration data for 27 super funds, based on their publicly available annual reports. The insights uncovered show that this new reporting is already enhancing transparency and accountability in the superannuation sector for employees, and customers alike.

Overview of the reporting

When it comes to pay, unsurprisingly, as a rule of thumb, size matters – that is, the larger the fund the higher the directors’ fees and executive remuneration.

One key part of the new reporting is that the remuneration of all Key Management Personnel (KMP), is to be included in the annual reports. This was previously disclosed in the ‘Related Party Note’, but on a non-mandatory basis.

From the 27 superfund reports that we analysed, the majority of funds disclosed their whole executive team as KMP rather than a select few, which meant we have a breadth of roles and responsibilities covered as part of the remuneration reporting, and therefore more transparency around what decision makers at the nation’s largest superfunds are paid.

How much are superfund executives paid?

When reporting the number of executives across funds, we found that:

• The average number of KMP was seven, and only six funds (22 per cent) had less than five KMP disclosed in their reporting
• The average total remuneration (including any cash bonuses, post-employment and long-term employee benefits), was $570,000 per fund
• There were outliers, with two of the funds we analysed having an average KMP total remuneration in excess of $1 million, although in both cases, these were distorted by the size of the Chief Executive Officer (CEO) and Chief Information Officer (CIO) total remuneration.

Breaking down remuneration by role

From the 27 funds we reported on, each superfund had an average of nine directors on their Trustee/RSE licensee Board. In FY24, they were paid an average of $107,000 per fund.

When it comes to CEO pay across superfunds:

• The average CEO remuneration totalled $890,000
• Eight funds paid more than $1 million to their CEOs, four paying more than $1.5 million, and the highest paying boss receiving $1.94 million last year.

When it comes to CIOs, we found that:

• They generally were paid just over 86 per cent of the average CEO remuneration
• The average total remuneration was $766,000
• There was a wide breadth of packages, with eight out of 27 receiving more than $1 million, two receiving more than $1.5 million, and the highest being paid $1.88 million last financial year.

An interesting finding was that in six funds (22 per cent of the reports we analysed), the CIO is actually paid more than the CEO.

How do incentives factor into remuneration?

• More than half the funds we analysed have long-term incentive plans: However, for profit to member funds, this just constitutes deferred cash payments (typically deferred over a four-to-five-year period for CIOs and five-to-six-year period for CEOs). This deferral is consistent with the expectations of the newly implemented CPS511 Remuneration, which require remuneration outcomes to be proportionate to performance and risk outcomes
• Seven funds (26 per cent) had no incentive programs in place: All but one of these have net assets available to members of $16 billion or less, and as expected, for-profit/retail funds have long term incentive plans in the form of share-based payment schemes
• Funds with incentive plans typically focused on a balanced scorecard between corporate and individual Key Performance Indicators (KPIs): However, only eight of the 27 clearly disclosed percentage breakdowns, so there weren’t consistent levels of transparency around performance related remuneration.

Looking forward

With the implementation of CPS230 Operational Risk Management and the Financial Accountability Regime (FAR) just around the corner, we expect to see the continued evolution of remuneration and reward within the superannuation system. These regulations aim to promote risk management and accountability and ensure that remuneration does not incentivise excessive risk taking.

When the Banking Executive Accountability Regime (BEAR) was introduced in 2018, it significantly impacted remuneration practices across the banking sector, and we anticipate that FAR will have a similar impact across Australian superfunds.

A key change resulting from BEAR was the introduction of deferred remuneration, where part of an executive’s performance-related pay was deferred for a minimum of four years, and this was mandated under the regime.

Interestingly, more than half of the funds we analysed are now offering incentives as part of their remuneration practices for executives, and seven funds are not offering any incentives at all.

While this is the current state of play in the sector, we expect to see more incentive related remuneration structures over coming years, leading up to the implementation of FAR, and we expect that this new regulatory environment will have an impact on not just the pay of superfund leaders, but also the alignment of pay to long term performance.

How BDO can help

With the advent of mandatory remuneration reporting, and the upcoming implementation of CPS230 and the Financial Accountability Regime, superannuation funds and other Australian Prudential Regulation Authority (APRA) regulated financial service providers must be prepared for enhanced regulatory reporting and compliance in relation to risk, accountability and reward.

We have experts working with clients of all sizes across the areas of superannuation, reporting, risk and governance, people advisory and organisational change who would be happy to support you on your journey as you and your business navigate changing reporting mandates. Contact us today to speak to our experts for tailored support.