Why public servants should be paid less
By Richard Harman (author)
A major row has broken out between the State Services Commission and the Guardians of the NZ Super Fund over how much the fund’s CEO should be paid.
The row raises questions about whether Government sector CEO's should be paid as much as their private sector counterparts and what the "service" part of the public service really means.
That's because the State Services Commissioner has suggested that those who work in the public sector should not expect the same level of rewards they might get in the private sector.
And Finance Minister Steven Joyce appears to agree with him.
The Guardians have decided to increase the remuneration package o f their CEO, Adrain Orr, to $1,217,112 for the 2017/17 financial year.
That makes him by far the highest earning public sector CEO in New Zealand.
The decision has drawn a sharply worded rebuke from the State Services Commissioner, Peter Hughes, and negative comments from Finance Minister Steven Joyce.
But last night the Guardians’ Chair, Catherine Savage, was standing by the decision and was afforming her right to reject advice from the SSC over the level of the package.
Orr’s package is so high because it contains a large segment which is performance related bonuses, a common practice in the private finance sector.
His base salary is $700,4000 – one of the highest on the public sector pay scale.
Hughes objected to the proposal to increase Orr’s base remuneration from $682,000 and his overall remuneration from $1,060,753.
"My advice to the board was that an increase of the size proposed was not justified," he said yesterday.
"The board made its own decision and did not follow my advice.”
And the board is legally entitled to ignore him. He, however, believes that as part of the sector they should constrain themselves within overall public service pay constraints.
“I do not accept the argument that Crown Entities such as Guardians of New Zealand Superannuation should be able to make decisions free of any public sector oversight or accountability.
“This is a public agency investing public money for the good of the public.
“And the Chief Executive’s remuneration is paid by taxpayers.
“ Crown Entities have a strong element of public service attached to their work and executives should reasonably expect to earn less than in a private sector company. “
Hughes wanted Orr’s salary increase reduced from 2.7% on the previous year to the State Services guideline figure of one per cent.
He has been supported by Finance Minister Steven Joyce.
“I consider that an increase of 2.7% is too large in the current climate, particularly given the increase in the previous year,” he wrote in a letter on July 27 to the chair of the Guardians.
Last year Orr’s remuneration package had increased by 35.6%.
Joyce said that he considered an increase of one per cent this year would be appropriate.
The Fund --- usually known as the Cullen Fund --- is something of a success story.
Since its inception in 2003, it has grown its investment funds to $35.4 billion even though the Government stopped contributions in 2009.
Over that period it has averaged a 10.2% return on its investments and last year returned 20.7%.
Its chair Catherine Savage told POLITIK last night that New Zealand will benefit from the fund performing well over a period.
“And that’s how we remunerate,” she said.
"It isn't just a fantastic performance over the year; it's a fantastic performance over four years.
“But we are highly conscious of the viability of the fund.
“We are also highly conscious of the effect the fund has and its performance.
“Therefore making it perform well is our top priority and part of that is having a great team and a fantastic chief executive.
“We are very lucky that at the moment we are doing well.”
It is understandable why Savage can’t understand what the fuss is about.
In comparison with private sector CEO's in New Zealand, Orr is nearer the bottom than the top of the pack.
For example, Jeff Greenslade the CEO of the Heartland Bank, receives a total remuneration of $1,318,612 --- $101,500 more than Orr – even though the bank has a capital worth of $2.34 billion, significantly less than the Super Fund.
The ten highest private sector CEO’s in New Zealand average $3.9 million a year.
Their public service counterparts in Wellington, many of whom manage entities with similar asset bases and often with much larger staffs, earn considerably less.
ACC has assets of over $34 million invested plus it runs a levy collection and compensation service that one way or another interacts with virtually every New Zealander.
For all that, its CEO receives a remuneration of up to $820,000.
Hughes' argument that the public service involves an element of "service" is widely accepted in Wellington, but in Auckland in positions which are easily translated into similar private sector roles, it may not be as easy to persuade people of its merits.