23 Aug 2018

Public sector chiefs could be paid more under changes

7:25 am on 23 August 2018

Some public sector bosses could end up better off under their new contracts despite being stripped of their performance bonuses.

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Photo: 123RF

The government announced on Tuesday an end to performance pay for most chief executives in the public service in an effort to slow the growth of their salaries.

But a Cabinet paper published online shows some bosses may ultimately be paid more.

Until now, chief executives have been paid a base salary plus an "at-risk" component of 10 percent which could be docked - but rarely was.

They could also receive a "discretionary performance payment" of up to 15 percent for exceptional performance.

The new arrangement rolls the "at-risk" sum into the base salary and scraps the bonus.

In return, the chief executives would receive an extra week's paid holiday and have their remuneration reviewed every year, the Cabinet paper said.

"The potential remuneration available as a result of the removal of performance pay will decrease."

However, the Cabinet paper also shows chief executives who would have previously missed out on a performance bonus will be better off.

The document provides an example of an "average chief executive" earning a base salary of $400,000 plus an at-risk payment of about $45,000.

Including a 15 percent bonus and a 10 percent pension contribution brings the total remuneration package to roughly $545,000.

However, if the chief executive didn't meet the criteria for a performance bonus, he or she would be paid approximately $485,000.

Under the new system - including the value of the extra leave - the same chief executive would receive about $504,000 - $19,000 more.

The State Services Commission publishes details about chief executives' remuneration every year, but does not include a breakdown of who received performance bonuses.

A spokesperson for the Commission declined to release those details, citing privacy reasons.

The exact change in remuneration will be reported in the 2018/19 pay report released at the end of next year.

The government estimated the new contracts would reduce forecast spending by up to $4 million by 2021/2022.

State Services Minister Chris Hipkins told reporters on Tuesday scrapping bonuses would put "downward pressure" on chief executives' pay.

"This is a significant change. It will see the curve turning downwards a little bit for the first time in a very, very long time.

"We acknowledge that the growth of those on the highest incomes... has been growing too fast, relative to the people who work at the lowest levels of pay in the public service."

He also criticised the use of performance bonuses for the wealthy, saying they disincentivised team-work and collaboration.

State Services Commissioner Peter Hughes has endeavoured to rein in chief executives' pay since his appointment in 2016.

He has made a point of re-appointing chief executives at lower pay and taking a conservative approach during remuneration reviews.

"These actions have resulted in a flattening of the rate of growth of pay levels at the top end although the full effect is yet to be realised," the Cabinet paper said.

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