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‘Enough with the big pay hikes’

The new Government has called time on the escalation of pay for state sector chief executives, saying candidates should be more interested in the public service than the remuneration.

State Services Commissioner Peter Hughes, who has been in the job since July last year, took the unusual step yesterday of calling out three Crown entity boards who had paid higher salaries than the Commission recommended in the last financial year. They are 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," Hughes said in releasing the Commission's Senior Pay Report for 2016/17.

"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," he said.

“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."

The average remuneration for 31 public service CEOs, where pay is set directly by the State Services Commission or the Remuneration Authority, rose 2.0 percent in 2016/17. This was up from 1.3 percent in 2015/16. Average pay for district health boards and tertiary education institutions rose 2.7 percent, while other Crown Entity CEOs saw a pay increase of 4.1 percent. The State Services Commission is consulted for DHBs, tertiary institutions and other crown entities, but final decisions rest with their boards.

Remuneration for managers in the public service rose 3.1 percent in 2016/17, while pay for other employees in the public service rose 2.5 percent. Other private and public sector CEOs saw their pay rise 3.1 percent in 2016/17, the Commission reported, which was up from an average 2.7 percent rise the previous year.

The average base pay for public service CEOs was 5.5 times the average pay of employees in 2016/17, which has actually fallen from 5.8 times in 2013. However, the pay ratio for chief executives of publicly listed companies on the stock market was between 30 and 50 times the pay of their average employee, according to a 2013 study by Dr Helen Roberts at the Otago University Business School. The pay multiples in New Zealand pale in comparison to multiples in America though. There, the CEO pay ratios are typically 300 to 500 times that of their employees, and over 1,000 in some cases.

Hughes said the Commission would develop a new policy for public service CEOs over the next two to three years.

"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," he said.

However, that still leaves the area of remuneration for crown sector entities, which the Commissioner does not control.

Hughes said State Services Minister Chris Hipkins had asked him for advice on potential regulatory options or changes to the Crown Entities Act to provide tighter controls.

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

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

Hipkins said he agreed with Hughes' approach.

"It’s appropriate to have a look at what can be done to put the brakes on escalating salaries," he said.

Roberts' study of executive pay from 1997 to 2013 showed pay ratios for publicly listed CEOs had doubled over that time, but the best performing companies were those with CEOs with the lowest pay.

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