Reserve Bank of Australia Annual Report – 2010 Financial Statements Note 12 – Key Management Personnel

The key management personnel of the Reserve Bank are members of the Reserve Bank Board, members of the Payments System Board, and senior staff who have responsibility for planning, directing and controlling the activities of the Bank. This Group comprises 20 in total, including the Governor and Deputy Governor, seven non-executive members of the Reserve Bank Board, five non-executive members of the Payments System Board and six Assistant Governors.

Fees of non-executive members of the Reserve Bank Board and the Payments System Board are determined by the Remuneration Tribunal. Responsibility for the terms and conditions on which the Governor and Deputy Governor hold office rests with the Reserve Bank Board, in accordance with section 24A of the Reserve Bank Act 1959. The Board's Remuneration Committee (comprising three non-executive directors) reviews annually these terms and conditions and, consistent with the Act, makes recommendations to the Board. The Governor and Deputy Governor do not participate in these deliberations.

Under long-standing arrangements, the remuneration of the Governor, Deputy Governor and senior executives of the Reserve Bank takes account of market levels of remuneration. This arrangement was established to allow the Bank the flexibility to attract and retain staff of the necessary quality. This arrangement is strongly supported by the Reserve Bank Board which sees it as being critical to supporting the Bank in achieving its objectives to the required standard.

In drawing relevant comparisons about the remuneration of the Governor and Deputy Governor as part of the annual review, the Board takes account of the high level of policy and operational responsibility carried by these positions. Their responsibilities for monetary policy and financial system stability are set out in the Reserve Bank Act 1959 and the fourth Statement on the Conduct of Monetary Policy issued in December 2007. The Governor and Deputy Governor exercise both governance and executive responsibilities for monetary policy as, respectively, the Chief Executive and Deputy Chief Executive of the Bank, and Chairman and Deputy Chairman of the Reserve Bank Board. They direct the professional work of the Bank's staff concerning monetary policy, bring recommendations to the Board, and speak on behalf of the Board on policy and other matters. The Governor takes the leading role in publicly articulating Australia's monetary policy framework, objectives and decisions. There are parallel responsibilities in relation to the Bank's policies and actions to foster overall financial stability.

The Governor and Deputy Governor are also responsible for overseeing the operations of the Bank. As the nation's central bank, the Reserve Bank is a substantial financial institution, with a balance sheet that averaged about $90 billion in 2009/10. It manages a large portfolio of domestic and foreign assets and transacts in large volumes in markets on a daily basis. It provides core payment and interbank settlement facilities to Australian financial institutions and a number of international financial institutions. As banker to the Australian Government, it undertakes banking transactions that account for some 20 per cent of outward direct entry payments in Australia, and provides other banking services. It is responsible for issuing currency notes which remain secure against counterfeiting and retain public confidence. As the Bank's monetary policy and other operations are pivotal to the safe and effective functioning of the financial system, the associated financial, operational and other risks must be controlled to the highest possible standard.

In addition to the responsibilities for monetary policy and overall financial system stability, the Governor is Chairman of the Payments System Board, which has been given specific regulatory and other powers under the Payments System (Regulation) Act 1998 for safety, efficiency and competition in the payments system. In this capacity, the Governor directs the work of the Bank's professional staff in relation to payments system policies and regulation.

The 2009 review of remuneration took account of the recent subdued outcomes in market pay. This followed a detailed review of the remuneration of these positions which began in 2007 and resulted in a substantial restructuring of this remuneration in 2008. The aim was to make the remuneration of these positions more transparent by removing long-standing non-cash benefits, which the Board regarded as no longer appropriate, and replacing them with salary. Accordingly, the only non-salary components of the remuneration of these positions is parking in Head Office, leave provisions and access to superannuation and health insurance on the same terms as are available to Reserve Bank staff. The Governor and the Deputy Governor are not eligible for performance bonuses. The Board also decided to increase total remuneration at the time of this review after reviewing developments in remuneration of executives in the private and public sectors, taking into account the significance and diversity of responsibility of the positions of Governor and Deputy Governor. The Board advises the Treasurer and the President of the Remuneration Tribunal of details of the remuneration of these positions.

The Governor, in consultation with the Remuneration Committee, determines the remuneration of Assistant Governors. Remuneration of staff, including Assistant Governors, is designed to ensure that the Bank attracts and retains the level of expertise necessary to carry out the work associated with its specialised policy, operating and regulatory objectives. Remuneration of staff is externally benchmarked against positions at a comparable level in the financial sector and in government business enterprises. Periodically, advice is sought from independent, specialised remuneration advisers on the structure of remuneration packages and the level of compensation in positions of comparable expertise and responsibility in relevant other organisations. The latest such review for Assistant Governors was carried out in 2007 and concluded that remuneration of these positions appeared toward the middle of the range of fixed remuneration for positions at a comparable level in a group of smaller financial institutions. Assistant Governors are employed under contract with a fixed term of five years. Continuation of employment, and renewal of contracts, is subject to ongoing satisfactory performance. Assistant Governors are not eligible for performance bonuses.

The RBA discloses remuneration of key management personnel on the basis of AASB 124 – Related Party Disclosures. The aggregate remuneration of the RBA's key management personnel on this basis was:

Short-term benefits include cash salary and, where relevant for executives, annual leave, motor vehicle benefits, car parking, health benefits and the fringe benefits tax paid or payable on these benefits. Post-employment benefits include superannuation benefits and, in the case of staff, health benefits. Other long-term benefits include long service leave. The components of remuneration are reported on an accruals basis. Members of the RBA's staff may salary sacrifice in exchange for certain benefits.

As at 30 June 2010 and 30 June 2009 there were no loans by the RBA to key management personnel.

There were no related-party transactions with Board members or executives: transactions with director-related entities which occurred in the normal course of the RBA's operations were conducted on terms no more favourable than similar transactions with other employees or customers; such transactions were incidental and for small amounts. As the Board of NPA comprised executives of the RBA in 2009/10 no directors fees were paid that year. An amount of $36,976 in 2008/09 was paid for non-executive members of the Board of NPA Limited who were not employees of the RBA or members of the Reserve Bank Board.

The information contained in the following table shows details of the remuneration of directors and management. The figures on which the table is based comply with AASB 124 – Related Party Disclosures, the usual commercial standard.

Average figures are shown for salary and total remuneration in remuneration bands in which there is more than one individual.