Politics

Govt cracks down on Crown entity CEO pay

A proposal to place tighter controls on the pay of Crown entity chief executives will provide “more teeth” to keep any increases in line with the wider public sector, Prime Minister Jacinda Ardern says.

The Government has introduced legislation to give the State Services Commissioner greater say over any pay increases for chief executives at Crown entities.

At present, some Crown entities must only consult with or “have regard to” the Commissioner’s advice before approving a pay rise - a situation which has led to controversy in the past, such as a 36 percent increase for Super Fund boss Adrian Orr in 2015/16 against the recommendations of both the SSC and then-Finance Minister Bill English.

The new legislation will require statutory Crown entities to receive the written consent of the Commissioner for the terms and conditions of a chief executive’s employment.

It will also introduce a fixed term of no more than five years for chief executives, while also allowing the Commissioner to apply a code of conduct to an entity’s board and board members.

Announcing the legislation, Ardern said the Government wanted to bolster the public’s trust and confidence in Crown entities by giving the State Services Commission “more teeth” to handle salaries.

“When you look at the picture overall between the state sector generally and Crown entities, there is a bit of a disparity between the increases that we’ve seen in one grouping versus the other grouping," Ardern said.

“What we want to see is consistency but also meeting public expectations about what’s reasonable and the level of pay increases in the economic environment that we’re operating in at any given time.”

A supplementary analysis report from the State Services Commission said public concern about senior pay levels was “starting to erode trust in the state services”, while a number of crown entities had shown they were not inclined to support the Commissioner’s and Government’s view.

“This fundamental disagreement about which market to benchmark chief executive remuneration to, means that it is unlikely that these agencies will ever agree voluntarily to comply with the Commissioner’s guidance and government expectations.”

“There is an assumption here that when you’re working within the public sector, and that does include Crown entities, that there is a level of public service involved, and so that is trying to bring alignment, balance between yes, being competitive but...not being out of step with public expectation.”

One briefing document about the legislation, proactively released by the Government, noted a number of “contentious aspects”, saying the change could be perceived to lead to “a reduced ability to attract the best chief executives or a diminished sense of responsibility by the board for chief executive recruitment and performance”.

The document also noted that the Treasury’s regulatory quality team raised concerns about limited analysis to underpin the conclusions reached about how the changes would impact board and entity performance.

“This is particularly the case where the measures apply to quasi-commercial entities where the tensions between competing values are seen as most acute.”

However, Ardern said chief executives’ salaries were already “operating at a particular level”, and there had to be different expectations compared to private sector roles.

“There is an assumption here that when you’re working within the public sector, and that does include Crown entities, that there is a level of public service involved, and so that is trying to bring alignment, balance between yes, being competitive but ... not being out of step with public expectation.”

Hipkins said the changes to employment terms and codes of conduct would bring Crown entities into line with the rest of the public service.

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