Remuneration of Public Service and State sector senior staff as at 30 June 2013

30 June 2013

The report Remuneration of Public Service and State sector senior staff as at 30 June 2013 is provided here as  PDF and Excel files

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Introduction 

An overview of the Commissioner's role and his remuneration policy is published below.
Cabinet has agreed that remuneration paid to Public Service and State sector senior staff should be disclosed annually in one location. This provides transparency for the taxpaying public around the level of remuneration received by senior State servants.
The State Services Commissioner (the Commissioner) takes a total remuneration approach to chief executive remuneration packages, which means that all benefits to a chief executive are valued as components of the package. 

The State Services Commissioner's role

The Commissioner's role includes setting and reviewing the remuneration of most Public Service chief executives[1] and advising on or approving the proposed terms and conditions of employment of 111 Crown entity (including tertiary education institutions and district health boards) and subsidiary chief executives. The Commissioner therefore has a direct influence on the remuneration received by about 137 chief executive positions in the State sector.
  • Under the State Sector Act 1988, the Commissioner appoints and employs most Public Service chief executives, and reviews their performance.
  • The State Sector Act 1988 also requires the boards of tertiary education institutions (Universities, Polytechnics and Wananga) to obtain the written concurrence of the Commissioner to the terms and conditions of employment for their chief executives.
  • The Public Health and Disability Act 2000 requires district health boards to obtain the consent of the Commissioner to the terms and conditions of employment for their chief executives.
  • The Crown Entities Act 2004 requires boards of statutory entities to consult the Commissioner about the terms and conditions of employment for their chief executives.
  • There are a small number of other agencies whose enabling legislation requires the Commissioner to be involved in setting the terms and conditions of employment for their chief executives.

Chief executive remuneration policy

The Commissioner's remuneration policy is well established, and is designed to provide an environment where high quality leaders are attracted to and encouraged to perform in key roles. The key features of the policy are to:
  • link chief executive remuneration to chief executive remuneration practice in the public sector[2]
  • provide flexibility and discretion for the Commissioner to set remuneration policy within broad boundaries determined by the Government
  • link chief executives' remuneration to their performance, by including a performance related component in their remuneration packages.
The key principles of the remuneration policy continue to be that it:
  • provides the ability to attract, retain and motivate suitable highly competent chief executives
  • is fair and equitable, flexible and transparent
  • has integrity (is statistically sound)
  • is efficient and manageable
  • is legal
  • is affordable
  • meets the Government's expectations for pay and employment conditions in the State sector
  • supports the business of Government
  • inspires public confidence.
The economy continues to recover from the effects of the global recession, and the Government's expectation is that remuneration changes across the State sector will be met within existing funding levels, reflect high performance, be responsible and demonstrate value for money.

Chief executive remuneration movement

For the year to March 2013, Strategic Pay data measured a 2.6% increase in median fixed remuneration for the top executives of matched organisations. The figure for the public sector was 2.1%, compared with 4.3% for the private sector.
For the same period, Hay Group advise that the average increase to fixed remuneration packages for New Zealand chief executives and group heads in their "public sector" database is 3.3%, down slightly on last year's average increase of 3.4%.
These comparisons indicate that chief executive pay increases in the State sector are staying in line with movements recorded in recent years and remain below increases in the private sector.

The Public Service

Figure 1 shows expenditure on remuneration, training and development, relocation costs and end of term payments for Public Service chief executives. Expenditure increased during the period 2006/07 to 2008/09, reflecting more buoyant labour market conditions and to allow some catch-up of Public Service chief executive remuneration with other parts of the State sector. Decreases in expenditure occurred in 2009/10 and 2010/11, reflecting an environment of continued fiscal restraint and modest remuneration expectations. The increase in expenditure for 2011/12 reflected payments to chief executives with untaken annual leave at the end of their terms, and relocation costs for newly appointed chief executives.
The decrease in expenditure for the 2012/13 year reflects an environment of continued fiscal restraint, a reduction in the number of Public Service departments and reduced relocation costs for newly appointed chief executives.
The Commissioner sets the individual remuneration for most Public Service chief executives but the overall wage bill is capped by the budget allocated by Government.

Remuneration movement guidance for 2013/14

The Commissioner continues to take a conservative approach around increases to remuneration. However, there continue to be instances where larger increases to remuneration are supported by the Commissioner, for example, where there has been a significant increase in a chief executive's job size.
Crown entity chief executive remuneration is set by Crown entity board chairs after consultation with the Commissioner. To provide consistency in the Commissioner's guidance around Crown entity chief executive remuneration, the Commissioner provided all board chairs with additional guidance when considering increases to chief executive remuneration. This indicates the Commissioner's expectations for reasonable increases to remuneration, taking into account individual performance, and a chief executive's position in a remuneration range. This guidance is summarised in the table below.
   
Crown Entity Chief Executives
   
Position against 2012/13 range midpoint
   
< 90% - 95%
96% - 100%
101% - 105%
106% - > 110%
Performance Rating
Exceeds expectations:
3.5%
3%
2.5%
2%
Meets expectations
2.5%
2%
2%
1.5%
Developing in the role
2%
1.5%
1%
1%
Doesn't meet expectations
0%
0%
0%
0%
The Commissioner is also using a similar method for determining increases to Public Service chief executive remuneration. The approach used for determining Public Service increases in 2012/13 is summarised in the table below.
This is structured slightly differently to the guidance for Crown entity chief executives, as it recognises that Public Service chief executive remuneration lags behind that of Crown entity chief executives in similar size roles.
   
Public Service Chief Executives
   
Position against 2012/13 range midpoint
   
80% - 89%
90% - 99%
100% and above
Performance Rating
Exceeds expectations
3.5%
3%
2%
Meets expectations
3%
2.5%
1.5%
Developing in the role
2%
1.5%
1%
Doesn't meet expectations
0%
0%
0%
For 2013/14 the Commissioner has made some changes to the consultation process giving Crown entity board chairs the ability to make modest increases within defined parameters. The Commissioner's guidance to Crown entity board chairs, and his practice for Public Service chief executives, continues to be that no increases are given to chief executives who do not meet performance expectations.
Footnotes:
[1] The Commissioner does not set remuneration for the chief executives of three departments: the State Services Commission, the Crown Law Office and the Government Communications Security Bureau. Remuneration for these positions is set by the Remuneration Authority.
[2] The State sector plus the organisations of local government in New Zealand collectively make up the "public sector".

Key points and Q & A

The report discloses the "total remuneration " 1 actually received for the 12 months ending June 2013. Movements between years do not always give a clear comparison. Some chief executives' reported remuneration varies significantly between 2011/12 and 2012/13. This may be due to:

  • the timing of pay periods during the year, which may result in a chief executive receiving, for example, 27 fortnightly pays during the year;
  • the timing of performance reviews and performance payments resulting in a chief executive receiving two or no performance pays during the year;
  • measured job size increases leading to an increase in remuneration (chief executive job sizing is undertaken by independent consultants);
  • Government Superannuation Fund employer contribution increases;
  • KiwiSaver employer contribution increases; and,
  • entitlements on the last day of duty, which may include retiring leave, annual leave not taken, employer superannuation payments owing on end of term entitlements and payment of salary in lieu of a notice period.
  • The State Services Commissioner appoints and employs Public Service chief executives, reviews their performance, and sets their remuneration (except for the State Services Commission, the Crown Law Office, and the Government Communications Security Bureau) 2 . The Commissioner also either advises on, or approves, the proposed terms and conditions of employment of 111 other Crown entity and subsidiary chief executives.

The State Services Commission's remuneration policy is that chief executive remuneration should be flexible, transparent, with modest increases that are performance-related, and take account of business issues such as recruitment, retention, and affordability.

The Government expects any remuneration changes across the State sector will be met within existing funding levels, demonstrate value for money, and not lead the Private sector.

Chief Executive Remuneration Questions and Answers

Why is the remuneration of chief executives reported?
Cabinet has agreed that remuneration paid to Public Service and State sector senior staff should be disclosed annually in one location. This provides transparency for the taxpaying public around the level of remuneration received by chief executives.

Does this disclosure include all chief executives in the public sector?
No. The report only covers remuneration of Public Service and State sector chief executives where the State Services Commissioner has an influence. It also includes remuneration received by some chief executives and other senior staff under the jurisdiction of the Remuneration Authority.

What's the role of the State Services Commissioner in Chief Executive Remuneration?
The State Services Commissioner's role includes setting and reviewing the remuneration of Public Service 3 chief executives, and advising on or approving the proposed terms and conditions of employment of 111 Crown entity and subsidiary chief executives.

The Commissioner concurs or consents to the remuneration of chief executives of tertiary education institutions and district health boards, and is consulted on the remuneration of chief executives of the majority of Crown entities. Crown entity chief executive remuneration is set in consultation with Crown entity board chairs. The Commissioner has no influence on the remuneration of chief executives of local government bodies and public sector trading enterprises operating in a commercial environment.

How is Chief Executive Remuneration set?
The Commissioner regularly monitors other markets which informs his decision on a remuneration "midpoint" for each chief executive role based on job size. The sizing of each chief executive role is carried out independently of the SSC by organisations with specialist expertise.

A government remuneration range is then established to allow reward and progression as the chief executive develops and performs in the position.

The midpoint is reviewed with effect from 1 July each year and provides context in which to consider a level of remuneration, but a chief executive's actual remuneration will depend on the individual circumstances of each organisation.

What characterises government's chief executive remuneration policy?
Government policy is that increases to chief executive remuneration are modest, performance-related, and consider business issues such as recruitment, retention, and affordability.

What are the features of the remuneration policy?
The main features of the policy are:

  • it links chief executive remuneration to chief executive remuneration practice in the public sector 4 ;
  • it provides flexibility and discretion for the Commissioner to set remuneration policy within broad boundaries determined by the Government; and,
  • it links chief executives' remuneration to their performance, by including a performance related component in their remuneration packages.

What are the key principles of the remuneration policy?
The key principles of the remuneration policy are that it:

  • provides the ability to attract, retain and motivate suitable highly competent chief executives
  • is fair and equitable, flexible and transparent
  • has integrity (is statistically sound)
  • is efficient and manageable
  • is legal
  • is affordable
  • meets the Government's expectations for pay and employment conditions in the State sector
  • supports the business of Government
  • inspires public confidence.

How does the current operating environment of financial constraints affect the remuneration policy?
While the economy is recovering from the effects of the global recession, the Government expects that remuneration changes across the State sector will be met within existing funding levels, reflect high performance, be responsible, and demonstrate value for money.

The overall wage bill for Public Service chief executives is effectively capped by the budget allocated by the Government. In addition to remuneration, as is released in this report, the budget allocated also makes provision for smaller items linked to the employment of chief executives - such as relocation expenses and professional development.

What are the components of a chief executive remuneration package?
The State Services Commissioner takes a total remuneration approach to chief executive remuneration packages, which means that all benefits to a chief executive are valued as components of the package:

  • base salary
  • performance payments for Public service chief executives are set at 15% of base salary and paid at the discretion of the State Services Commissioner
  • performance components for Crown entity chief executives are typically set at between 10 - 15% of base salary, but vary according to the needs of the organisation .

Other components that may be included are:

  • employer contributions to superannuation, including KiwiSaver
  • annual leave - any additional leave in excess of 20 days per annum is valued into a chief executive's remuneration at 0.4% of total remuneration per day
  • vehicles are no longer offered to newly appointed Public Service chief executives. Crown entity chief executives may have the option of a vehicle if their employer agrees. A vehicle is valued at 45% of the purchase price (including GST and on -road costs), with a maximum purchase price of $46,000 and based on a three year/60,000 kilometre replacement cycle. This value includes all fixed costs and Fringe Benefit Tax. It assumes full private use, but running costs incurred on holidays or extended travel are expected to be covered by the chief executive
  • Other components such as medical insurance are not common, and are valued into a chief executive's remuneration at the cost to the employer.

The remuneration disclosure published by the SSC includes all components of a chief executive's remuneration package.

What are chief executive end of term entitlements?
As for any employee, payments made to a chief executive on their last day of duty primarily relate to the payment of annual leave not taken.

If a chief executive is a member of a superannuation scheme, payments might also include employer superannuation payments owing on end of term entitlements.

If it is not possible to give a chief executive the requisite amount of notice of termination provided for in their employment agreement they may be eligible for a payment of salary in lieu of the notice period.

Some chief executives are also eligible for a 'recognition of service' entitlement. This entitlement was available to public servants prior to legislative change during the 1980's but has not been offered to Public Servants for over 20 years. However, if a long serving Public Servant has been receiving the entitlement the Commissioner has continued to recognise the entitlement.

The amount and type of entitlements paid to each chief executive varies, depending on the chief executive's individual terms and conditions of employment. Not all chief executives are entitled to or receive the payments listed above.

Who was the source of the remuneration figures in this report?
The State Services Commission (SSC), as employer, is the data source for Public Service chief executives. SSC collects the remuneration figures from the Remuneration Authority and the respective agencies of the other chief executives

Back to: Remuneration of Public Service and State sector senior staff as at 30 June 2013

Footnotes:

1: Total Remuneration includes base pay, any performance pay as well as the value of any benefits received such as employer contributions to superannuation, motor vehicles or additional annual leave.

2: Are set by the Remuneration Authority

3: The Commissioner does not set remuneration for the chief executives of three departments: the State Services Commission, the Crown Law Office and the Government Communications Security Bureau. Remuneration for these positions is set by the Remuneration Authority

4: The State sector plus the organisations of local government in New Zealand collectively make up the "public sector".