Public sector entities must disclose the total remuneration they pay to key management personnel (KMP). However, the information that needs to be disclosed can vary depending on the type of public sector entity. These disclosures should be straightforward, but can cause confusion for preparers of financial statements. The key is keeping things simple: focus on what was earned during the year and put it in the right category.
Here are some practical tips to help you understand what to include and how to classify it in your disclosures.
Who are KMP?
KMP are the people who have the authority and responsibility for planning, directing, and controlling the activities of the entity. In short, they are the key decision makers who influence strategic direction and performance.
KMP typically include:
- councillors (for local governments)
- ministers (for all state public sector entities)
- board members (for statutory bodies and government owned corporations)
- senior executives (all entities).
Not all senior employees are KMP. Employees are generally not KMP if they:
- manage day-to-day operations only
- do not have authority over strategic decisions
- operate under direction without significant decision-making power.
Acting arrangements can also create uncertainty. It’s not about the title, it’s about whether the functions of a KMP role are being performed, and whether that occurs for a material part of the financial year.
Getting this right is the starting point for a complete and accurate KMP disclosure.
What is KMP remuneration?
KMP remuneration captures all compensation an entity provided to key decision-makers in the financial year.
Golden rule: KMP remuneration is reported on an accrual basis. It reflects what is earned during the year, not simply what has been paid.
Disclosure requirements
There are different financial statement disclosure requirements across the public sector.
- local governments are only required to disclose KMP remuneration in aggregate
- state public sector entities (including departments, statutory bodies, and government owned corporations) are required to disclose remuneration for each KMP position individually.
Four main categories of remuneration
KMP remuneration is split into 4 categories.
1. Short-term benefits
Short-term benefits include amounts earned during the year such as:
- salaries and wages
- allowances
- bonuses earned during the year (including unpaid amounts expected to settle within 12 months)
- annual leave expense
- non-cash benefits (for example, motor vehicles and car parking).
Key point: Annual leave expense is the movement during the year, not the closing balance of the provision or the amount of annual leave taken during the year. This reflects what was earned in the current period.
2. Post-employment benefits
These are generally limited to employer superannuation contributions, being the superannuation expense relating to the current reporting period.
3. Other long-term benefits
Other long-term benefit include amounts earned during the year, such as:
- long service leave expense
- bonuses earned during the year that are not expected to settle within the next 12 months.
Key point: Like annual leave, this should reflect the movement during the year, not the closing balance of the provision or long service leave taken during the year.
4. Termination benefits
These only arise when there is an actual termination of employment. Termination benefits are those arising from an entity’s decision to terminate employment before the normal retirement date or an employee’s decision to accept an offer of benefits in exchange for the termination of their employment. What to include:
- redundancy payments
- contractual exit payouts / ex-gratia payments
- other termination-related payments.
Key point: If no one has had their employment terminated, this category will be nil. These do not include payout of other entitlements provided for, such as leave balances.
How to approach the calculation
A simple way to approach KMP remuneration is:
- start with everything the KMP has earned during the year
- group each component into the correct category
- ensure amounts reflect accruals, not just cash paid.
Common issues we see
A few recurring challenges tend to come up:
- using cash paid instead of accruals
- missing bonuses that were earned but not yet paid, even if the approval date was after the reporting date
- including leave balances instead of movements
- misclassifying leave payouts as termination benefits
- forgetting about non-cash benefits
- including termination amounts in the wrong category.
A quick sense check
Before finalising your disclosure, it helps to ask:
- have I included all KMP?
- have I included everything earned during the year?
- have I allocated amounts to the correct category?
- have I used movement (not balances) for leave entitlements?
- have I included accrued and non-cash items?
If the answer is yes, you’re in a strong position.
Get those basics right, and your disclosures will be complete and accurate.