Jamie Morton

Jamie Morton is science reporter at the NZ Herald.

Public CEOs enjoy big pay hikes

Mighty River Power chief executive Doug Heffernan. His 2011 salary was $1,769,342. Photo / Sarah Ivey
Mighty River Power chief executive Doug Heffernan. His 2011 salary was $1,769,342. Photo / Sarah Ivey

Public organisations have paid about $90 million to their chief executives in a year - with some receiving rises of more than 20 per cent, and one getting a 55 per cent increase.

Public bosses received an average $340,000 each in the last financial year - up $14,000 (4.3 per cent) on the previous year. The median income in New Zealand from wages and salaries during the same period increased $1600 (4 per cent) to $41,600.

But some chief executives received rises far in excess of these percentages, according to a Herald survey of about 300 Crown entities, councils, state-owned enterprises and other organisations in the public sector.

The best-paid chief executives were from state-owned energy companies.

Mighty River Power, Solid Energy, Meridian Energy and Genesis Power all paid their CEOs more than $1 million. Big rises took their deals to more than $5.5 million combined.

Mighty River increased its chief executive's pay by 34 per cent, or $450,000, to $1.8 million. Most of the increase resulted from the company meeting performance targets.

The figures have drawn criticism from unions at a time when the Government has proposed shake-ups to the public sector.

State Services Commissioner Iain Rennie said he expected public entities to "exercise restraint" in the coming year for chief executive pay and "to propose increases only where the chief executive has performed strongly or in exceptional circumstances".

Other entities run as private firms, such as TVNZ, were also on the higher end of the CEO pay scale. These state-owned enterprises pay their salaries from revenue rather than taxes.

By comparison, local council CEOs were paid about half on average, while the remuneration at state departments and ministries fell for the year.

Public Service Association national secretary Richard Wagstaff said movements in salaries in the senior echelons of the public service had been outstripping those in the rest of the workforce for decades.

"CEOs in the public sector do carry enormous responsibilities and they have big jobs - nobody's questioning that - but everyone in the public sector is under a lot of pressure, and when the people on top of the pile get rewarded well in excess of everyone else, it's not a good look and it really just doesn't feel fair."

Council of Trade Unions economist Bill Rosenberg said some rises given to public-body chief executives were as much as other workers in the same organisations were paid in a year.

"These huge pay increases have been justified for too long on the basis of superior performance, but we are yet to see any justification for that kind of statement."

Labour Party state services spokesman Chris Hipkins saw the increases as a "slap in the face" to public sector workers fearing redundancy amid the Government's public sector reforms.

"There does need to be restraint. It has got out of control and, at a local government level, I think some of these CEOs' salaries are very hard to justify."

Local Government NZ president Lawrence Yule said council CEO salaries had risen, but still lagged behind CEO rates in the private sector and in many top public sector roles.

"You will also find a number of councils over the last few years, often at the CEOs' request, haven't had pay increases," Mr Yule said.

"If you go and look in just about any region and see what CEOs of polytechs, universities, lines companies and hospital boards are paid, certainly in most provincial regions they are higher than the council chief executives."

Comparing pay packets in different years is prone to variation due to large payments whenever CEOs leave.

The payments can blow out the year's remuneration - including for a $300,000 one-off payment to a departing Police Commissioner, $200,000 to a Defence Force chief and $350,000 to a Treasury Secretary.

At other times, they can reduce the year's total payments while a replacement is sought. In years with multiple chief executives, the survey used a combined total.

The pay packages also include performance-based bonuses, which can cause large fluctuations.

Many of the salaries are set by the State Services Commission and have been made available through it. The salaries that were set with the commission's input rose by the least.

More than 100 other organisations are not tracked in one place and release their information individually.

COMBINED PAY TOPS $5.5m FOR BOSSES OF TOP ENERGY FIRMS

The bosses of our four large state-owned energy companies are the highest paid chief executives of about 300 organisations analysed across the public sector - and also received some of the biggest pay hikes.

The combined remuneration of the heads of Mighty River Power, Solid Energy, Genesis Power and Meridian Energy totalled more than $5.5 million.

And in 2011, the four heads were more than a combined $1.1 million better off than the year before, with the chief executives of Mighty River Power and Meridian Energy respectively jumping 34 per cent and 42 per cent - bringing pay rises of $451,873 and $362,933.

A 22 per cent pay rise was awarded to the boss of Genesis Power, Albert Brantley, while Solid Energy's Don Elder received an 11 per cent boost - an extra $140,000.

The highest paid of the heads was Mighty River Power's Doug Heffernan, at $1,769,342.

Remuneration for the bosses of Solid Energy, Meridian Energy and Genesis Power also topped the million dollar mark, at $1,410,00, $1,220,620 and $1,180,000 respectively.

A users group spokeswoman says the public would be shocked at the figures - but the companies say the packages are competitive to others nationally and internationally, and reflect performance.

Dr Heffernan's remuneration package included a short-term incentive payment for performance of nearly $164,000, a $643,333 long-term incentive payment and a fixed remuneration of $962,069 that had risen nearly $28,000 in one year because of legislative changes to annual leave rate calculations.

Mighty River Power board chairwoman Joan Withers said incentive payments varied between years, and long-term incentive payments often took into account performance over past projects.

Dr Heffernan's long-term incentive payment recognised a three-year plan and he began a new one this financial year.

"Typically, STIs tend to be anything from 25 per cent to 35 per cent, and what you see classically, is the LTI is the bigger percentage of the total remuneration package."

When setting remuneration, the board sought advice on the size of the job and what the total package should be, as well as other advice on what percentage each component should comprise.

"We try to be fair. We know Doug's got marketable skills, that he has operated in a listed environment and he's been in the role 11 years. There's a whole bunch of subjective things the board has to look at and say, do we want to keep this guy, is this a fair package?"

Solid Energy chairman John Palmer said half of Mr Elder's pay was "at risk" and relied on him achieving short term and long-term targets.

All four companies are pegged for a proposed Government sell-off of 49 per cent of their shares - and the Herald asked each of them whether this would mean more large pay rises.

Genesis Energy public affairs manager Richard Gordon said the company's method of calculating remuneration was not linked to their ultimate ownership.

Mighty River Power was not prepared to speculate what an initial public offering would mean for remuneration, while Meridian Energy said any future remuneration change was a matter for its board.

But Domestic Energy Users Group spokeswoman Molly Melhuish suspected the partial float could hold big changes to CEO salaries.

She said the present figures surprised her - and would "absolutely horrify" customers.

"Those are very large increases and very recent."

"I think salaries are one of the several handles that increasingly disaffected customers will use to beat up the companies, whether before or after privatisation."

RESTRUCTURING JOB SAVES $130M

The organisation that notched up the biggest pay cut for its boss has cited a corporate restructuring for the change - and says it had nothing to do with the sudden departures of two previous heads.

The pay package for the top job at Invercargill Airport fell 41 per cent from $320,000 to $190,000 between 2010 and 2011, as the board changed the role of chief executive to that of a general manager amid a gradual shake-up.

Board chairman Joe O'Connell said the pay drop was unrelated to circumstances surrounding Gordon Johnstone, who unexpectedly left the job just eight days after starting in 2010.

"We still can't basically explain why he disappeared ... we were totally unaware of what was going on, to be honest, it's still a bit of a mystery to us."

Earlier, the airport's role of chief executive had been changed to general manager after the sudden departure of Barry Bouton.

Southland-born Chloe Scala was quickly appointed in Mr Johnstone's wake and Mr O'Connell said she had led the company well.

A refocus of the business over the past few years had looked at its make-up and what functions could be done in-house or contracted out.

"Regional airports are a tough business to be in, you've got to be conscious of the costs and you've got to work pretty hard."

Ms Scala's pay had been set after analysis of industry-related pay rates, he said.

Other organisations that saw big pay drops between 2010 and 2011 included MetService, where remuneration for the role held by recently appointed Peter Lennox fell from $400,000 to $330,000.

Chief executive pay package decreases of 13 per cent were seen at Bay of Plenty Polytechnic - sliding from $240,000 to $210,000 - and at Post Group, where the amount paid to chief executive Brian Roche fell from $950,000 to $830,000.

MINOR LEAGUE EXECS ON $160,000

Mark Neeson is chief executive of the Walking Access Commission, which helps to resolve access issues with landowners.

Their salaries are at the lower end of the pay scale of state bodies - but the bosses of lesser-publicised organisations such as the Walking Access Commission and the Artificial Limb Board are still earning well over $100,000.

The $30,000 pay jump the Walking Access Commission's chief executive, Mark Neeson, received last year took his salary to $160,000,

The commission's annual report explained the change was due to both the start date of employment and a change in the Government Superannuation Fund employer contribution.

The recently established commission, governed by a five-person board with a team in Wellington and a network of regional field advisers, says it provides leadership on walking access issues, administers a national strategy on walking access, undertakes mapping, oversees a code of responsible conduct, assists with dispute resolution and negotiates new walkways and tracks.

Expense claims for Mr Neeson last year included travel and accommodation for meetings with and presentations to trusts, clubs and authorities around the country.

Board chairman John Forbes said Mr Neeson's pay was "not very far up the range" for chief executives of other organisations.

He believed the commission was proving good value for money, particularly at resolving disputes involving landowners.

"The minister keeps us under a microscope to deliver the goods, and if we weren't performing they'd reconsider our future," he said.

"We are a small organisation and we are doing something which is quite dear to the hearts of New Zealanders."

The chief executive of the New Zealand Artificial Limb Board, Mervyn Monk, also earned $160,000.

Among the board's listed functions are manufacturing, importing, exporting, supplying, fitting, repairing and maintaining artificial limbs, carrying out research and development, providing rehabilitation, and giving advice to the Minister of Social Development.

The board, with a total of five employees, says it also contracts with the Ministry of Health and the ACC to provide funding for most clients, with a declining number of war amputees being funded separately and a small number of specialised prostheses provided by private contract.

It lists as a highlight providing technical support to athletes competing in the 2011 IPC Athletics World Championships in Christchurch.

Mr Monk's expenses in the second half of last year, including accommodation, flights and parking for conferences, centre visits and meetings, totalled nearly $5000.

Learning Media, a state-owned enterprise which develops literary and educational material, paid its chief executive $240,000 last year.

Catalyst Risk Management Ltd, a third-party administrator in ACC's Partnership Programme that provides "pro-active and cost-effective workplace absence management solutions", paid its boss $170,000, while the chief executive of anti-doping group Drug Free Sport NZ earned $120,000.

- NZ Herald

© Copyright 2014, APN New Zealand Limited

Assembled by: (static) on production bpcf03 at 23 Dec 2014 07:06:04 Processing Time: 464ms