The NZ Initiative's Amy Thomasson & Sam Warburton probe a key area of spending and oversight within New Zealand's transport authorities

By Amy Thomasson & Sam Warburton*

Regulatory governance is hardly a sexy topic. But given the powers modern day regulators wield over everyday commerce, it warrants our attention.

To spruce things up, we have teamed up to look at one element from the Transport portfolio that raises questions about spending and oversight.

Regulatory governance and monitoring

One way to look at regulatory governance is through the lens of the private sector. Shareholders in a public company are responsible for pulling the board up if it is underperforming.

In a similar way, Ministers and their departments are responsible for monitoring the performance of the statutory Crown entities in their portfolio. And while many of New Zealand’s regulators are directly accountable to a board, all are ultimately accountable to Parliament.

External monitoring markedly enhances accountability. It helps ensure that regulators are performing well and problems are brought to the attention of the Executive.

Regulators must produce accountability documents for various purposes under several statutes. This includes an annual report, where regulators assess their performance against the objectives they set in their Statement of Performance Expectations (SPE) and Statement of Intent (SOI). Annual reports also contain details of financial expenditure.

Annual reports and salaries

As in the private sector, the purpose of annual reports in government is partly marketing and partly transparency. Transparency so investors – in this case, Ministers and the public – can see what value they’re getting for their investment. Annual reports help monitoring departments hold regulators to account.

One thing agencies typically report on is salaries over $100,000. This is an area that journalists enjoy. The statistics are easy and readers can compare it with their own earnings.

A criticism might be that it’s easy to pick on salaries and there are more important things to investigate. Like shooting ducks in a pool of money.

This will often be true.

Sometimes significant salary changes will be justified.

An organisation might have expanded.

Or it might have changed the mix of its responsibilities, requiring expensive expertise.

Other times, salary changes will point to other questions.

Salary changes at the NZ Transport Agency

Readers of the NZ Transport Agency’s 2015/16 annual report might have noticed an increase from 418 to 555 in the number of employees being paid more than $100,000.

Figure 1 puts the increase in context over time. Employees are divided into $10,000 salary bands (except for the last one which goes from $290,000 to $720,000).

To the eye, the number of staff in each band increases gradually between 2011/12 and 2014/15, before leaping in 2015/16.

Figure 1: Number of employees by salary band


Some of the increase will be caused by general inflation. Figure 2 attempts to account for this.

Figure 2 shows the difference between actual numbers of employees in each band and the expected number in each band had employees been even distributed within the bad and received 2 percent salary increases each year.

That is, if there were ten employees in the $100,000 to $110,000 band, the model assumes there was one employee on $100,000, one on $101,000, another on $102,000, and so on. As salaries increase, those lower in the band move further up the band, and those as the top of the band move into higher bands.

Between 2011/12 and 2014/15, the chart shows some salary bands having more employees than we might expect, and some salary bands having fewer. In general, the overs and unders roughly offset each other.

That is until we get to 2015/16. Two years ago, something happened that caused every salary band to have an increase in employees. An increase more than we’d expect from modest salary increases. About 100 more people than we’d expect.

Who are the 100?

Figure 2: Difference between actual and expected employee counts, $110,000 to $290,000


Maybe the NZ Transport Agency grew in size

Overall employee numbers at the NZ Transport Agency were up in 2015/16, but only slightly. Here are the total full-time equivalent counts by year (as at 30 June):

Year

Total FTEs

$100,000+

2012

1,347.6

294

2013

1,379.8

329

2014

1,344.0

390

2015

1,322.0

418

2016

1,392.0

555

2017

1,352.5

562

In 2015/16, the total number of FTEs increased 5% (from 1,322 to 1,392) but the number of people on salaries greater than $100,000 increased 33%.

In fact, despite the increase in total employees, the number of people on less than $100,000 fell. While the number of people earning above $100,000 increased by 137, the number of people earning less than $100,000 fell by 67.

Maybe the NZ Transport agency has changed direction, requiring expensive expertise

Possibly, but there appears to be no indication of this in public documents.

Further, such a change in salary distributions might be expected following a formal restructure. However, there wasn’t a formal restructure of the NZ Transport Agency until mid-2017 and even after that, the salary distribution was largely unchanged.

So, who are the 100?

Unable to find a clear explanation by either the NZ Transport Agency or Ministry of Transport (who oversees the performance of the NZ Transport Agency), we approached both.

The Ministry of Transport did not respond.

The NZ Transport Agency wrote:

Remuneration Increases

The NZ Transport Agency remuneration movements have been consistent with the public sector and wider NZ market.  In 2015 the benchmark data used to determine salary increases moved more, and as a consequence the midpoints for the Transport Agency salary bands also increased, and more employees crossed the $100K threshold.

Size of organisation

There was an increase of 70 FTEs in 2015/16 which resulted in more employees in the $100K plus salary brackets. This was in part the result of recruiting additional staff to manage state highway network programmes. These details are noted on pages 104 and 168 of our 2015/16 annual report.

We found these responses vague and unconvincing.

Remuneration increases

The NZ Transport Agency didn’t provide a reference for the benchmark increases, nor the size of those increases.

In recent years, public sector salary inflation has been a bit below the 2 percent we assumed. Relevant private sector inflation (e.g. in construction) has been a bit above the 2 percent we assumed. Neither would seem to explain much of the salary increases.

In any case, uncertainty about how many employees were just under $100,000 and who might cross the $100,000 threshold is why we didn’t count them. As noted in Figure 2, we’ve only counted people between $110,000 and $290,000.

Size of organisation

It is true that there was an increase in FTEs of 70 in 2015/16 (as we noted earlier).

And the annual report (page 58) does say ‘extra resource was allocated to progress state highway priority programme business cases earlier than initially planned’. However, this resource was in addition to what had already been budgeted. Page 104, which the NZ Transport Agency directed us to, talks of $35 million being spent on staff to manage state highways, down from $40 million the previous year.

It is possible to spend a smaller amount of money on an even smaller number of people and have salaries increase. It is, therefore, plausible that accelerated state highway planning makes up part of the 100.

But it strikes us as unlikely that this explains much of the 100.

The NZ Transport Agency’s vague response has buttressed our suspicion. The Agency only says that the increase in FTEs would have resulting in ‘more’ employees on $100,000, and that this is ‘in part’ due to accelerating state highway planning. If these reasons explained much of the change, we’d expect a more definitive answer.

This brings us to wider questions of external monitoring

Of course, there may well be a good explanation for the increase in the number of people on salaries greater than $100,000. The problem is that if there is a good explanation, it hasn’t been publicly documented. And it should be. Whether that’s by the NZ Transport Agency self-disclosing, or by the Ministry of Transport asking the right questions.

In its report on regulatory institutions and practices in 2014, the Productivity Commission noted that the quality of ministerial monitoring of regulators is incredibly variable, largely because it depends on the interests and tendencies of the responsible minister.

The Productivity Commission also found that most ministers and their monitoring departments focus too much on process and not enough on outcomes. Some simply aren’t interested. Others are too interested. It recommended that department–regulator relationships should move to more formal interactions, based on clearly-defined roles and responsibilities.  

The then-Government only “partially agreed” with this recommendation. In response, the then-Minister for Regulatory Reform wrote a letter to regulatory agencies to remind them of the Government’s expectations with regard to monitoring and reporting practices and departmental-regulator relationships. That’s not even the equivalent of a slap on the wrist.

Delivering value to the public through regulation should be taken just as seriously as is profit-maximisation in a public company. It is on this basis that ministers need to be attentive to specific areas of risk and make sure they are asking the right questions, without second-guessing actions of the board.

Perhaps if the Ministry asked NZTA the right questions, we’d know where all that money is going and why.

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*Amy Thomasson is a research assistant at the New Zealand InitiativeSam Warburton is a research fellow at the New Zealand Initiative, which provides a fortnightly column for interest.co.nz.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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10 Comments

The rise of the bureaucrat class. The lack of transparency, faceless leadership, and empty responses are all hallmarks of this closeted cardigan-and-slippers world. Sure, they might all wear sharp suits in 2017 and use contemporary corporate lingo like "disruption" and "adding value", but the cardigan is fitted onto the attitudes and behavior. A closeted existence where expectations are relatively low and individual responsibility is rarely necessary beyond checking boxes correctly.

When you have an infestation you call an exterminator.

New trend: There is No Such Thing As ‘Free Trade’
http://www.theamericanconservative.com/articles/there-is-no-such-thing-a...

How can you expect the ppl serving the government to be held accountable, when the government itself cannot even be.

Best job ever!

Spending other peoples money into a debt situation, is not a situation any Country should be in, especially when short changed.

Expecting the Taxpayer to keep funding the debt indefinitely, until the cows come home.. is stupidity personified.

Expecting the thieving Politicians and Bankers to catch a thieving rental market and spculators up, is crazy.

Even when Hand in glove. and fiddling the books.
Expecting a Business class ride, on a plane load of second class citizens who pay their Salary and their expenses and their bloated expectations and their pensions, is suicidal, especially when this is compounded. by stealing Savers assets and over rated to boot..

Enuff already....

As an ex-payroll person (who has worked in SOEs). I can say that Salaries are a very hard thing to analyse.

Outside of the compulsory reporting. i.e. number earning over $100k. All other data is strictly confidential. They are not required (prohibited is almost a better word) to provide any additional information, reasoning, or details, as any extra detail "may" lead to the ability to identify an individual.

As a result you will not be aware of any breakdowns, and how they impact the data. i.e.
- Full/Part Time.
- Temp/Permanent.
- Role description
- Skill base of the employee
- who their internal "network" is (i.e. mates rates from the boss)

One possible (but ultimately unlikely) explanation on the increases is the move towards flexible conditions. Reduce working hours, but increase salary. i.e. no change in overall costs, but the salaries look higher.

In terms of any OIA requests/ministerial questions, they can usually be answered with a generic "Required skills in the current market". Which is often true.

Salaries have to be comparable across both Public and Private sectors. We as Taxpayers may not like it, but the reality is no-one will work for Public on $40 an hour, if the same role is $50 an hour everywhere else.

An option around this predicament is to impose stricter salary budgets with the aim of encouraging efficiency when hiring. i.e. reduce staff bloat. But this just leads down the contractor route...

This is often where the real money is being spent. I never cease to be amazed with the amount of Contractors that by all accounts should be employees. Current NZ law actually addresses this quite well, but only if a dispute arises between contractor and company. If the relationship is good then the money flows freely.

As a result of your queries - don't be surprised if next year the figures "appear" lower as the higher earners are restructured and come back as consultants.

As a result of your queries - don't be surprised if next year the figures "appear" lower as the higher earners are restructured and come back as consultants.

Yep, the consulting wicket is a good one, particularly in the public sector.

I really don't get the point of these kind of articles. As a tax payer of course I don't want to see wasteful expenditure, but I also don't understand why competitive salaries are "a bad thing" in the public sector.

There seem to be several inconsistencies with the theme of this article and some of the comments from readers:
- Public & private sectors recruit from the same talent pool - why should the public sector attract 2nd tier talent by paying sub-market salaries?
- Why is $100,000 this magical figure? It's been the *same* magical figure for as long as I can remember and surely it has to be adjusted upwards to account for general inflation and sector wage pressures? (just like our PAYE tax bands...)
- Artificial caps on salaries and FTE numbers by politicians and public sector CEOs just result in people returning as consultants on twice as much money. In my experience these people deliver less value and take knowledge with them once they are finally purged (usually after being on rolling 6-month contracts for up to 3 years!)
- Professional people here therefore fall into 1 of 2 camps - either you are a public servant pushing for the magical $100k salary or you're one of the overpaid consultants on the FTE-cap gravy train. You can criticize one camp or the other but not both.
- The real issue underling all of this is the problem of "trickle up" in our society - wage growth is stagnant, productivity is stagnant, manufacturing jobs are disappearing to bots & AI, the middle class is facing the squeeze & getting smaller, and all the while the 1% are hoarding more and more money.

Not really the fault of the educated middle class in Wellington is it?

Each of your five points in turn:

1. NZTA provides no evidence in support of such a big market movement.

Further, the increases are across the board above $100,000. Has there been market movements in EVERY position? Unlikely.

If NZTA's explanation that many people have tipped over from just below $100,000 to above $100,000, they haven't moved into the $100k-$110k band or even the $110k-$120k band as those have seen very small increases. They've moved into the $120k-$130k (or higher) bands.

Let's assume that these people were previously on $95k to $100k. That's between a 20% and 40% increase in salary in one year (120/100 to 130/95). That's quite a jump (if NZTA's explanation has credibility). There should be some explanation of this in NZTA's documents or by MOT who has oversight. And is this an ongoing risk which should be managed?

2. We'd love to look at every salary band, but agencies only report above $100,000.

3-4. Yep, but also stuff that should be clearly disclosed by NZTA or monitored by MOT.

5. No comment.