Top-End Pay for Chief Executives Not Sustainable

Top-End Pay for Chief Executives Not Sustainable

State Services Commissioner Peter Hughes has today published the State Services Commission’s Senior Pay Report for the 2016/17 financial year.

The Senior Pay Report discloses the total remuneration paid to State sector chief executives in the 2016/17 financial year, from 1 July 2016 to 30 June 2017. It is the second report published by Mr Hughes since he became State Services Commissioner on 4 July 2016. Due to the timing of performance related payments to Public Service chief executives, this report still reflects performance decisions made prior to his starting in the role.

This year’s Senior Pay Report is the first to identify Crown entity Boards that choose not to follow the Commission’s advice on remuneration increases for their chief executives.

There are three examples of Boards that chose not to follow the Commission’s advice and gave remuneration increases above recommended levels: Guardians of NZ Superannuation, ACC and Telarc.

“The upward trajectory of chief executive salaries in the State sector, in particular some Crown Entities, is not sustainable and it’s time for change,” Mr Hughes said.

“I expect public accountability and transparency around the remuneration for public sector chief executives and that includes Crown entities. Crown entities have a strong element of public service, operating with public money for the public good and executives should reasonably expect to earn less than in a private sector company.

“Crown entities who choose not to follow State Services Commission advice with respect to the chief executives’ remuneration are now identified in this report. This information can inform Ministers’ decisions about the tenure of board members.

“While the Board has the right to make these decisions, I do not believe increases of the magnitude given are warranted or justifiable in a public agency, especially where the increase follows previous increases over and above my advice.

“The Minister has asked me for advice on regulatory options and potential amendments to the Crown Entities Act to provide tighter controls over remuneration increases for Crown entity chief executives.”

On the issue of pay for Public Service department chief executives, the Commission is developing a new remuneration policy that will better reflect a spirit of service and which is underpinned by integrity, transparency, fairness, affordability and consistency. The new policy will recognise and reward motivations other than remuneration and will be more closely aligned to the delivery of high-quality services for New Zealanders. It is likely to be 2-3 years before any changes are reflected in the annual Senior Pay Report.

“Pay levels at the top end of the State sector are too high, and I’ve believed that for a number of years,” Mr Hughes said.

“There has always been, and should be, a differential between the pay of senior executives in the public and private sector.

“There are important guiding principles that underpin the role and function of the Public Service which are relevant to chief executive remuneration. One of those principles is the spirit of service, a duty to act responsibly in the public interest and to be a good trustee of public resources, including remuneration. The second principle is around public trust, an expectation that the State sector is accountable, transparent, fair and reasonable.

“Remuneration for State sector leaders is about a balance between being fair to individual chief executives, recognising the jobs they do, and being fair to the taxpayers who pay the bill.

“The aim is a remuneration policy that strikes the right balance between fairness to chief executives and the taxpayer and the need to attract and retain talent. And it must uphold public services principles.”

The average remuneration increase for Public Service chief executives in the 2016/17 year was 2.0%. The average increase for Tertiary Education Institution and District Health Board chief executives was 2.7%. The average increase for Crown Entity chief executives was 4.1%. Over the same period the average salary increase for Public Service staff was 2.3%.

The Senior Pay report is available at

http://www.ssc.govt.nz/senior-pay-report

ENDS

Interpreting the Senior Pay Report

Please note that the Commissioner’s statements relate to chief executive pay levels and not pay levels for State servants generally.

The report is based on total remuneration received over the course of the year including base salary, performance related payments, superannuation contributions and any other benefits received, such as additional leave. It may include entitlements paid at the end of a contract, such as payment of outstanding annual leave balances. It is inaccurate to refer to the figures listed in the report as ‘salaries’.

When interpreting the reports, movements in remuneration from year to year for individual chief executives may not represent an increase in base salary and need to be interpreted with caution for a number of reasons. The timing of fortnightly salary payments, performance reviews and the timing of any resulting performance based payments, remuneration reviews and job size reassessments can all influence year-on-year movements in remuneration.

The reported remuneration figures usually include performance payments that relate to the previous year. If a CE’s end of term is close to the end or beginning of a financial year, this can make the remuneration received by a CE very different to the annual entitlement. For these reasons, the Commissioner intends, in future years, to revise the approach to what is disclosed to make it easier to understand and therefore more transparent.

Setting Remuneration for Chief Executives

Remuneration for Public Service (central government departments and ministries) chief executives is set by the State Services Commissioner, except for those set by the Remuneration Authority (SSC, Crown Law and GCSB).

Remuneration for Crown entity chief executives is set by their Board (as the employer) following consultation with the State Services Commissioner.

District Health Board and Tertiary Education Institution Boards or Councils must get the State Services Commissioner’s agreement to the terms and conditions of employment, including remuneration and any remuneration increases.

The Commissioner provides guidance to Board chairs to achieve remuneration movements that are in line with those in the broader State sector workforce.

The Remuneration Authority sets remuneration for Officers of Parliament and chief executives of non-Public Service Departments (Police, NZDF) chief executives.

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