The next Reserve Bank Governor is set to have his or her pay rise potential set differently to the annual “haggling” the Finance Minister has with the Bank’s board of directors.
Prime Minister Bill English has foreshadowed changes to how leaders of the NZ Super Fund, Reserve Bank, ACC Fund and Housing New Zealand would be assessed for pay increases, following outcry over a 36% annual increase to Super Fund CEO Adrian Orr.
English put the Super Fund board members on notice, saying the move was clearly against his recommendation for a much lower increase.
“I think any board that takes a different view [to the government] when it’s a 100% subsidiary takes risks about tenure, and that’ll be discussed when the appointments come up,” English said in relation to the Super Fund board.
Speaking to media at his post-cabinet press conference Monday, English said the government would likely look at different settings for the heads of the four “$20bn-plus” government-owned organisations.
There had been pressure from the Reserve Bank board around the Governor’s pay, he said. Current Governor Wheeler earns between $$640,000 and $649,999.
Boards had shown professional competence and management – there was no question about this – however, they needed to align with government interests, English said. “They’re still public organisations.”
“I think it would be better to find a more stable process for these very significant appointments,” he said.
“With the time that there is available until the Reserve Bank Governor appointment, there will be the opportunity to just try and get a longer-term view than an annual haggle with a board who, rightly, is saying their chief executive’s very competent, but are a bit over-enthusiastic about what they should be paid,” English said.
Recruitment for the four organisations was in theory in competition with the global market, English acknowledged. “They are by global standards, large, sophisticated organisations.” Boards therefore tended to benchmark against a different pay standard than the local one.
“In our experience there’s a long queue of people who want to do those jobs. We’ve just got to find a better balance there,” he said.
13 Comments
Alex
The Reserve Bank Governor's conditions of employment (presumably including salary and salary reviews) are already set directly by the Minister, in negotiation with the Governor. The Board has to be consulted, but otherwise has no formal role in the process.
http://www.legislation.govt.nz/act/public/1989/0157/latest/DLM200033.ht…
Thanks Michael, I think what he's saying is that he didn't like having to engage in the 'board consultation' part of that process every year and he wants this aspect changed for these four organisations.
This is all a bit of a free kick right in front of the posts for him in my view. On the doc with his comments on the Orr increase he wrote that, 'if asked, I will publicly state that I opposed this.' Not, 'I'm going to change the law if you go ahead with this.' Much better to wait a bit further into election year for that...
For the RB Governor, it might be easy enough to put the new person on a fixed nominal (or fixed real) contract for the whole five year term, but that simply shifts the pain (including the headline pain) to the point where each appointment or reappointment is made.
Personally, I can't see a problem with having the super fund CEO head's salary set by SSC, perhaps with some advice from the Board. The current model seems a bit like the worst of both worlds.
Recruitment for the four organisations was in theory in competition with the global market, English acknowledged. “They are by global standards, large, sophisticated organisations.” Boards therefore tended to benchmark against a different pay standard than the local one.
Let's take the Board of Governors of the Federal Reserve System as an example.
The Congress sets the salaries of the Board members. For 2017, the Chair's annual salary is $199,700. The annual salary of the other Board members (including the Vice Chairman) is $179,700. Read more
Of course, the chair of the Fed is not particularly well-remunerated at the time, but it has become a pathway to subsequent riches, of the sort not available to someone who has once served as Governor of the RBNZ. Same goes, I suppose, for the job of US President.
Well that would be silly if the Board sets a salary that factors in compensation for lack of potential future earnings - sounds like a sort of short man elitist madness? It's like saying, here's an extra half mil per annum given you won't become anybody of note working here.
I'm not suggesting that in the NZ context (and don't have a strong view on how much our RB Gov should get paid), but am simply noting that the US can get away with paying top people really rather low salaries partly because people who take those jobs know what extraordinary returns they can often get once they leave government service. Chair of the Fed is a particularly obvious example- and Ben Bernanke an obvious example of the phenomenon.
The costs of lack of scale and isolation besets all New Zealand residents. But I believe all US public service employment is set at a lower remumeration level than what is expected and delivered for a lot of comparable positions in NZ.
The US private sector is just as parsimonious. I worked for a major US G-SIB in London and the maximun dealing room salary was STG150,000. Anything above that in the form of a bonus was dependent on collective trader returns exceeding budget and stipulated capital costs.
The low US public sector salaries are mostly only for the top positions, where Congress is directly involved in setting salaries. Overall US public sector conditions, especially once pensions are taken into account, are generally seen as pretty generous relative to private sector comparators.
On Fed chairs, Greenspan got an $8m advance for his book, Bernanke $1m, and when he left the Fed Bernanke was reportedly getting $250000 per speech. And all that before signing up with a financial institution.
https://www.bloomberg.com/news/articles/2015-05-06/bernanke-inc-lucrati…
The total (in post ,and after post) returns to being Fed chair far exceed (and no doubt should do) those available for being RBNZ Governor, even if the cash salary of the RB Gov is higher than that of the Fed chair.
Well, yes, he must have figured the bigger the cock-up the better the pay off in post-employment terms;
http://www.zerohedge.com/news/2017-02-20/alan-greenspan-ron-paul-was-ri…
And the world thinks Trump is doolally.
Pensions are a bribe to avoid current salary increases. US State pension schemes are increasingly unsustainable in a growing number of indebted state jurisdictions due to poor capital compounding prospects - witness flat government debt curves. I passed all my non-contributory payments in London to my personally managed pension scheme and then moved it all to NZ to avoid future liquidity issues, when I retired.
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