MPs will pass a law under urgency on Wednesday to cut their latest hefty pay rise and to index future increases against the same measure that is used for superannuation rises.
Prime Minister John Key said cabinet today decided that MPs' annual pay rises will be measured against the quarterly employment survey - and taken each June for the previous year.
The part of the survey relating to MPs' pay will be the average public sector pay increase from July to June of the previous year.
So the pay rise the MPs will pass this week, of 1.5 per cent, and backdated to July 2014, is based on the public sector pay increase from July 2013 to June 2014 and taken as an average.
"That's less than half of what the Remuneration Authority decided and in my view is far more appropriate," Mr Key said.
The Remuneration Authority Amendment Bill in the name of Workplace Relations Minister Michael Woodhouse effectively tells the Remuneration Authority what it must give MPs.
Mr Key said the authority would still have the ability to change the mix of cash and non-cash items which would have no impact in terms of compensation.
Mr Key said the quarterly employment survey was the measure used to set increases in New Zealand superannuation and paid parental leave.
Despite calls from Mr Key to give MPs a zero or modest pay rise, the Remuneration Authority ordered a 3.5 per cent rise two weeks ago and 5.5 per cent when travel allowances were included.