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GUIDELINES

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					            New South Wales Government
            Department of Premier and Cabinet




GUIDELINES
Chief Executive Officer
Performance Agreements

Issued by the Public Sector Workforce Office | April 2008
Guidelines for Developing CEO Performance Agreements and
Reviewing CEO Performance




Executive summary
A key element of the corporate governance of the New South Wales (NSW) public
sector is the developing of Chief Executive Officer (CEO) performance agreements and
the reviewing of performance against the agreement.

These Guidelines set out the requirements with respect to preparation of CEO
performance agreements and CEO performance review within the broad context of
NSW Government priorities (including the State Plan), agency results and personal
contribution. They also reflect key legislative and reporting obligations.

In summary:

•   CEOs should have a performance agreement which is updated at least annually.
•   CEOs listed in Parts 1 and 2 of Schedule 2 of the Public Sector Employment and
    Management Act 2002 (PSEMA) are required to use the template attached to these
    Guidelines for their performance agreements.
•   Lead CEOs under the State Plan will have their performance agreements signed by
    the Premier, relevant Portfolio Minister and the Director General, Department of
    Premier and Cabinet.
•   There should be regular CEO performance reviews based on these Guidelines.
•   Lead CEOs under the State Plan will have their annual review conducted by the
    Director General, Department of Premier and Cabinet, bringing together input from
    Premier, relevant Portfolio Minister/s, Results and Services Plan (RSP), Priority
    Delivery Plans and other key information.
•   Partner CEOs under the State Plan may be required to have their annual review
    conducted by the Director General, Department of Premier and Cabinet, if particular
    concerns arise.
•   All other CEOs will continue to have their annual review conducted by their Portfolio
    Minister.




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Guidelines for Developing CEO Performance Agreements and
Reviewing CEO Performance




Applicability
All Chief Executive Service (CES) Officers subject to part 3.1 of the PSEMA are
required to comply with these Guidelines. Section 64 of the PSEMA defines the CES as
all positions listed in Parts 1 and 2 of Schedule 2 of the Act.

It is recommended that the revised template (attached) is used by all CEOs as a basis
for their performance review and agreement.

CEOs of State Owned Corporations are also encouraged to adopt aspects of these
Guidelines that they consider relevant. (The CEO Contract Guidelines for Government
Businesses –see reference page 8, provide guidance for SOC Boards in relation to CEO
performance agreements.)


CEO Performance Agreements and Performance Review
— the Legal Context
Employment contract and performance agreement

•   Section 69(1) of the PSEMA provides that the employment of the CEO is to be
    governed by a contract of employment.
•   Section 70 of the PSEMA details what should be included in the employment
    contract between the CEO and the Minister. This includes performance criteria for
    the purpose of performance reviews.
•   The standard model contract that agencies must use is contained in the SES
    Guidelines. The performance agreement, Schedule B of the model contract, is an
    essential component. It is negotiated on appointment.

Performance review

•   Section 71(1) of the PSEMA requires that the performance of the CEO must be
    reviewed, at least annually, by the officer’s employer, or by some other person
    nominated by that employer1. The employer in this instance is the Minister under
    delegation by the Premier (s162 of the PSEMA).
•   Section 71(2) of the PSEMA states that the, “review is to have regard to the agreed
    performance criteria for the position and any other relevant matter”.
•   The Statutory and Other Offices Remuneration Tribunal (SOORT) Administrative
    Guidelines provide that: “Any decision to grant an increase determined by SOORT
    must be based on a formal assessment of the officer’s performance as being of a
    satisfactory standard.”




1
 This nominated person is usually the Director General, Department of Premier and Cabinet, where a
CEO may report to more than one Minister or is a Lead CEO under the State Plan



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Guidelines for Developing CEO Performance Agreements and
Reviewing CEO Performance




CEO Performance Management
A CEO leads their agency by developing a Corporate Plan and Results and Services
Plan (RSP)/Statement of Business Intent (SBI) which clarifies the agency’s
responsibilities in achieving Government priorities. These documents also communicate
to both internal and external stakeholders what the agency is aiming to achieve, and
how its performance will be measured.

The performance management process links the strategic needs of the NSW
Government, agency’s results and the personal performance of the CEO through a
structured planning and review process. It provides a process for clarifying expectations
and identifies priorities and expected achievements. In reviewing the performance of the
CEO, the Minister, or some other nominated person, considers both the agency
performance and the personal performance of the CEO in achieving the results.

The State Plan and Lead CEOs

The State Plan requires Lead CEOs to be accountable to their Minister/s and to the
Premier for delivery of their specific priorities. In recognition of this, the Premier and the
Director General, Department of Premier and Cabinet are signatories to their
performance agreements.

State Plan priorities are additional to the standard key accountabilities. For agencies to
achieve these State Plan priorities and agency results they need skilled and
experienced leaders able to work effectively across agency boundaries. The CEO
performance agreement highlights these added responsibilities.

The performance management process for Lead CEOs is similar to the process for all
CEOs except for additional priorities allocated under the State Plan.

The State Plan sets out a CEO accountability framework for delivering on State Plan
priorities, which are the specific responsibility of a single lead Minister and a Lead CEO.

Annual performance review meetings for Lead CEOs will be conducted by the Director
General, Department of Premier and Cabinet, bringing together the input of the Minister,
Premier’s Delivery Unit, RSP/SBI, a blind peer review (introduced in 2008/09) and any
other relevant information. The Premier will also have input into Lead CEO performance
reviews.




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Guidelines for Developing CEO Performance Agreements and
Reviewing CEO Performance



The State Plan and Partner CEOs

Partner CEOs have been identified under the State Plan based on their agency’s ability
to significantly contribute towards delivering a State Plan priority. The State Plan’s new
accountability framework referred to the review of Partner CEOs performance
conducted by the Director General, Department of Premier and Cabinet. This may occur
if particular concerns arise. In the first instance however, their performance will be
assessed in a number of ways:

•   CEO Cluster Groups driving progress on joint initiatives will identify Partner CEOs
    contributions and resolve any issues of underperformance.
•   Quarterly Performance Reports for each priority prepared by the Lead Agency will
    include identification of performance, upcoming action and challenges for Partner
    Agencies.
•   The Director General, Department of Premier and Cabinet may choose to
    undertaken the annual review of a Partner CEO’s performance if it appears an
    agency is underperforming or may get a central agency team to investigate where
    performance support is needed.
•   These reports can help inform the Director General, Department of Premier and
    Cabinet, if concerns have arisen.


CEO Performance Agreements
In any setting, performance agreements are a critical component of good performance
management systems. They are a key tool for aligning objectives and performance
expectations at strategic, operational and business unit levels within an organisation.

It is important that CEO performance agreements show clear linkages between the
agency’s Corporate Plan, RSP/SBI, State Plan priorities and the CEO’s personal
performance. They will include high priority government, agency and personal
performance objectives that have been developed and discussed with the Minister.
Wherever possible, numerical and objective measurement of progress should be given.

The performance agreement is expected to summarise the CEO’s performance
outcomes and achievements. It is not intended to be an additional burden to the CEOs
by duplicating other documents; achieving alignment between key planning processes
and the performance agreement will help to reduce the duplication of effort.

Delivery of government priorities: The performance agreement supports the State
Plan CEO accountability framework through the delivery of Government priorities
agreed between the Minister and the CEO.

Agency performance: The CEO has overall accountability for the leadership and
effective management of the agency's resources and the agency’s contribution to
achieving priorities and planned results/targets. Progress is reported through key
performance indicators.



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Guidelines for Developing CEO Performance Agreements and
Reviewing CEO Performance



Personal performance of the CEO: The personal contribution the CEO makes to
achieving agency results and to broader Government key priority areas; in particular,
where the CEO has personal accountability for the results achieved.

The CEO is responsible for the general conduct and the effective, efficient and
economic management of their agency and the equitable management of their staff and
is expected to:

§   Provide the Minister with frank advice that is relevant, accurate and timely;
§   Deliver programs to meet the customer service delivery mandate of the State Plan,
    e.g. S8 Increased customer satisfaction with Government services. This would
    include application of the key principles:

    1. Develop customer insight
    2. Design services around customers
    3. Respond to individual user needs within available resources
    4. Support employees to provide excellent customer service

§   Deliver specific agency programs and projects within agreed financial and human
    resource levels;
§   Ensure that good employment principles and practices operate within the agency;
§   Maintain and monitor robust internal controls and reporting systems;
§   Ensure statutory and other compliance of the agency; and
§   Ensure their agency contributes to the economic, social and environmental
    development of the State.

Key priority areas also include the leadership capabilities to deliver agency core
business. Each key priority area requires a result indicator to prove achievement. CEO
core capabilities relate to a CEO’s general and specific accountabilities. For example,
resilience and interpersonal skills will enhance a leader’s ability to resolve cross-agency
issues and implement solutions. The core capabilities offer the chance to discuss
behaviours that will help drive results. Feedback may form the basis of a personal
development plan to help support these leadership capabilities.




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Guidelines for Developing CEO Performance Agreements and
Reviewing CEO Performance




                                                    Delivery of
                                                    Government
                                                     Priorities



                          Agency                                                Personal
                        Performance                                           Performance


             •    Corporate plan                                     •   Personal contribution
             •    Priority Delivery Plan                             •   Personal attributes linked to
                                                                         Government priorities
             •    Budget: RSP/SBI
             •    Government/Minister/State
                  Plan priorities




                                                  CEO Performance
                                                    Agreement


             •    Delivery of Government Priorities
             •    Results linked to State Plan priorities, RSP/SBI and other key objectives
             •    CEO core capabilities, personal attributes of the leader




Performance Agreement and Review Cycle
All performance agreements have a common time frame, covering the period 1 July to
30 June. They will be agreed on appointment and then reviewed annually. The review
process should be concluded by 1 October each year to meet the timelines for the
SOORT determination.

Lead CEOs will report to the Director General, Department of Premier and Cabinet, who
will consult with the Minister/s in advance of the agreement and review progress. The
Premier will review and approve the Performance Agreement of Lead CEOs.

All other CEOs will continue to report performance directly to their portfolio Minister.

Prior to the beginning of the financial year CEOs will be advised in writing of the
Government’s priorities and are required to submit to Treasury either an agreed RSP
(for review and endorsement by the Cabinet Standing Committee on the Budget) or a



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Guidelines for Developing CEO Performance Agreements and
Reviewing CEO Performance



final SBI (for review and endorsement by the Treasurer and Portfolio Minster) for that
period.

The process below is summarised in the attached flow chart.

June/July: (for all CEOs)

•   In advance of the performance agreement meeting the CEO completes the attached
    template in Attachment 2. The template includes:

    - The past performance agreement and self-assessment endorsed by the Minister;
    - Up to 5 key Government priorities (including the State Plan priorities) as
      endorsed by the Minister/s;
    - Up to 5 key agency accountabilities as agreed with their Minister;
    - A self-assessment of personal contribution to key achievements in their agency
      over the past 12 months and potential contribution over the next 12 months.

•   The Premier’s Delivery Unit provides a summary of achievements against the State
    Plan priorities for lead and partner CEO Agencies to the relevant agency CEO and
    the Director General, Department of Premier and Cabinet.

July/August: (for all CEOs except Lead CEOs under the State Plan)

•   All CEOs have their annual review meeting with their Minister/s. This considers the
    achievement of objectives from RSPs/SBIs and other relevant government
    documents; and
•   At the meeting the CEO’s performance over the previous year is reviewed and
    priorities for the coming year are agreed.

August/September:

•   The Minister/s signs off on the performance agreement and, if appropriate,
    recommends a remuneration increase based on that year’s SOORT Determination,
    effective from 1 October.


July/August: (for Lead CEOs under the State Plan)

•   The Director General, Department of Premier and Cabinet, in consultation with the
    relevant Minister/s, meets with the Lead CEO and comments on achievements
    against each priority area, discusses the CEO’s Personal Development Plan and
    endorses the draft performance agreement.




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Guidelines for Developing CEO Performance Agreements and
Reviewing CEO Performance




August/September:

•   The Director General, Department of Premier and Cabinet provides the performance
    review documentation to the Minister/s, who may add further comment before
    signing it and forwarding it to the Premier. The Premier reviews the CEO’s
    performance, signs the performance agreement and, if appropriate, recommends a
    remuneration increase based on that year’s SOORT Determination, effective from 1
    October.

October to June: (for all CEOs)

•   The CEO receives regular ongoing feedback from the Minister. The performance
    agreement can be revised at any time during the year with the agreement of the
    CEO and Minister to reflect changing priorities.


October to June: (for Lead CEOs under the State Plan)

•   The Director General, Department of Premier and Cabinet and Premier will be
    involved in any revisions to their performance agreement (and sign off any
    variations).


Aboriginal Affairs Results
All CEOs are responsible for delivering Aboriginal Affairs results as part of their
agency’s results and service performance.

Premier’s Memoranda 2006-09 and 2006-10 require CEOs to include Aboriginal Affairs
results and indicators in their performance agreements and separately to report on
those results to the CEO Group on Aboriginal Affairs.

The time-frame for reporting on these results to the CEO Group on Aboriginal Affairs
has been adjusted to align with the new Performance Agreement Cycle. Reports are
now due by 1 October each year. Reports should cover activity and achievements
reached in the previous financial year.


Reviewing Performance
It is important that the CEO and the Minister, regularly review agency priorities and
discuss CEO performance. Regular feedback and review ensures that changes in
Government priorities are included in the performance agreement.

One formal documented review annually is mandated under the PSEMA, Section 71(1).

At the review meeting, the CEO will report on their personal as well as the agency’s
success in achieving the Government’s priorities and desired agency results. The


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Guidelines for Developing CEO Performance Agreements and
Reviewing CEO Performance



completed template (as outlined above) can be used as a reference point for these
discussions.

Development plans may arise from these discussions.

The Minister may seek the views of the Director General, Department of Premier and
Cabinet about their contribution to State Plan priorities or cluster group initiatives.

A satisfactory annual performance review is the basis of any remuneration increase in
the SOORT determination. SOORT determinations are updated annually and are
effective from 1 October. Advice on the latest SOORT Determination can be found in
Premier’s Memorandum 2007-17:

http://www.dpc.nsw.gov.au/publications/memos_and_circulars/control_assets/memoranda/minis
terial_memoranda?assetid=10835


CEOs with multiple ministerial reporting

For CEOs who report to more than one Minister, the Premier may delegate authority to
the Director General of the Department of Premier and Cabinet to review their
performance. The development of the CEOs performance agreement would remain
between the respective Ministers and the CEO. But where agreement could not be
reached between Ministers on a CEO’s performance agreement, the Director General,
Department of Premier and Cabinet would be the arbiter. Assessing and managing
competing Ministerial priorities of equal merit and urgency may be resolved through this
process.


Role of the Premier’s Delivery Unit (PDU)
The State Plan updates, including the Priority Delivery Plan quarterly update reports
submitted to PDU will be used by the Director General, Department of Premier and
Cabinet, to inform the CEOs’ annual performance reviews.


Peer review feedback process

The State Plan includes a commitment for the Department of Premier and Cabinet to
coordinate a ‘blind’ peer feedback process amongst CEOs as a key input into
performance reviews. For 2008, CEOs should nominate a Partner CEO or a central
agency CEO/Senior Executive for their peer review. A central agency should also
provide comment on this review. Feedback will provide informal input into the review
process.




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Guidelines for Developing CEO Performance Agreements and
Reviewing CEO Performance



References

NSW Treasury: Treasury Circular (TC 06/22) – Results and Services Plans (RSPs)

NSW Treasury: Policy and Guidelines Paper TPP 06-9 -Financial Management Framework – What
You Do and Why: An Agency Guide to Defining Results and Services

NSW Treasury: Policy and Guidelines Paper TPP 06-1 – Commercial Policy Framework – CEO
Contract Guidelines for Government Businesses

NSW Treasury: Policy and Guidelines Paper TPP 05-2 – Commercial Policy Framework – Reporting
and Monitoring Policy for Government Businesses.

Premier’s Memorandum 2007-17: Annual determination of remuneration of Chief Executive and
Senior Executive Service.



Attachments

1 Flow Chart
2 Performance Agreement Template




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Attachment 1


Flow chart of the process
                                    Do you have lead responsibilities under the State Plan?



                                No                                   Yes
                                Minister prepares for                DG, DPC prepares for
                                Performance Review and               Performance Review and
                                Agreement meeting and sets           Agreement meeting
                                date (June/July)                     (June/July) with input
                                                                     from Premier, Minister/s,
                                                                     and other sources and
                                                                     sets date



                                 CEO completes and submits template 14 days before meeting



                                CEO meets Minister                   Lead CEOs meet DG,
                                (July/August)                        DPC (July/August)




                                       Meeting involves discussion of last year’s work and
                                       performance and next year’s government, agency
       CEO and                            and CEO’s personal development priorities
     Minister have
         regular
        informal                   Ministerial evaluation and comment on CEO’s performance
      reviews of
       progress/
       feedback
         against                                                     Minister and DG, DPC
     performance                                                     sign performance review
      agreement                                                      and agreement for Lead
       priorities                                                    CEO


                                        Minister signs performance review and agreement



                                                                     Premier signs
                                                                     performance review and
                                                                     agreement for Lead CEO


                                                                     Lead CEO signs
                                CEO signs performance                performance agreement
                                agreement and returns it to          and returns it to DG, DPC
                                Minister                             and Minister


                                Performance review and agreement form basis, if appropriate,
                                for remuneration increase based on the SOORT Determination




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