Cream at the top for public sector chief executives

Saturday, 20 July 2019

The salary offered to Christchurch City Council's new chief executive, Dawn Baxendale, was criticised by some. (First published July 2019)

Public sector salaries are once again under the spotlight after the announcement that Christchurch City Council's new chief executive will earn almost $500,000. But are they really that bad? DOMINIC HARRIS investigates.

Poor Dawn Baxendale. Christchurch City Council's new chief executive may be 19,000 kilometres away back in England and yet to pack her bags, but she's already raising hackles in her new home.

The 52-year-old, a veteran of almost three decades working in the public sector, will be paid handsomely when she takes over as top dog at city hall, and is likely starting the role later this year after she has finished up at Birmingham City Council.

For some it is too handsome a package.

New city council boss Dawn Baxendale is being given $30,000 to relocate to Christchurch from New Zealand - despite applying for the role, and not being tapped on the shoulder for it.

Baxendale, offered the job after being flown to New Zealand and interviewed by the council, will receive $30,000 to relocate from the UK along with her husband and two sons – the payment coming despite the fact she applied for the job and was not specifically headhunted for it.

* Christchurch City Council chief executive role 'job of a lifetime'

* Incoming Christchurch City Council chief executive's salary just shy of $500,000

* Lyttelton Port Company boss Peter Davie to retire

Karleen Edwards has waved goodbye after five years heading Christchurch City Council. Now, her successor's $495,000 has provoked fury among some.

* All eyes are on the 15 men and women in $2 million club of executives

* Income inequality: How NZ is one of the worst in the world**

But it is her salary that has really caused raised eyebrows.

Chief executives of public sector organisations in Christchurch are paid handsomely, and some believe they are laughing all the way to the bank.

At $495,000 a year, it is more than $80,000 higher than predecessor Karleen Edwards earned in the final year of her contract, and a significant hike on her reported UK salary of £210,000 (NZ$397,000).

A quarter of councillors voted against it and Mayor Lianne Dalziel admitted this week it made her feel 'awkward' and that she 'didn't like' it.

The last time a council boss was given such a pay rise it led to an uprising in Christchurch, with 4000 people turning out in 2012 to protest against former chief executive Tony Marryatt's $43,000 boost that saw him pocket $538,529 a year.

But while Baxendale's salary raises questions about pay at the top of the public sector food chain, others in the Canterbury region are also doing well for themselves.

BIG BUCKS AT THE TOP

Stuff has analysed the salaries of 14 chief executives (CEO) of key public organisations, many owned or partially-owned by the city council's Christchurch City Holdings Limited (CCHL), scrutinising their pay via annual reports.

Tony Marryatt's massive pay hike in 2012 triggered mass protests on the streets of Christchurch.

The highest paid CEO in 2017/18, the most recent year for which there is comparable data, is Lyttelton Port boss Peter Davie, whose $981,000 – from a salary of $615,000 and $366,000 incentives – is almost twice what Baxendale will earn. He is resigning at the end of the year to go sailing around the Pacific.

Behind him comes Steve Fuller, head of CCHL-owned fibre broadband company Enable, who earned $934,000, followed by Christchurch Airport CEO Malcolm Johns, who was paid $836,360.

The lowest paid were Christchurch NZ boss Joanna Norris, on $325,000, Red Bus CEO Paul McNoe, on $303,250, and Regenerate Christchurch head Ivan Iafeta, who earned $300,000.

MOVING ON UP

Some have seen big changes to their wage packets in recent years.

Lyttelton Port Company chief executive Peter Davie, the highest paid of all the city's public sector bosses, retires at the end of the year to sail around the Pacific.

Fuller saw his pay rocket from $635,000 in 2015/16 to $934,000 in 2017/18, a rise of 47 per cent.

Explaining the increase, a company spokesman said Enable had brought a world-class broadband network to 200,000 Christchurch homes and businesses '18 months early and below budget'.

'A considerable element of our CEO remuneration is performance based, and any payments reflect the success of the Enable business.'

Johns saw his pay go up more than 27 per cent over the same period, from $656,500 to $836,360. The Christchurch airport is on track to welcome seven million visitors this year, with international arrival numbers currently growing at twice the national average.

The city council CEO's pay has risen almost 23 per cent, from $403,397 in 2015/16 to Baxendale's $495,000 next year – though the rise is much lower if using Edwards' 2017/18 salary of $414,987.

Other chief executives have seen salaries stay stable, and even fall.

Airport boss Malcolm Johns saw his pay go up by almost $200,000 in two years, largely attributed to a boom in visitor numbers.

Electricity distribution company Orion boss Rob Jamieson had his pay drop from $715,000 in 2015/16 to $675,000 in 2018/19 after deferred payments came to an end, even though his base salary has risen.

Onno Mulder, head of CityCare, the only CCHL business that operates nationally, saw his pay fall from $585,000 in 2015/16 to $575,000 in 2017/2018 after he failed to secure an incentive payment.

And both Christchurch NZ boss Norris and Regenerate Christchurch CEO Ivan Iafeta have seen their salaries unchanged at $325,000 and $300,000 respectively since they started, Iafeta requesting his pay remains constant.

Remuneration for the most senior staff does not necessarily reflect the size of an organisation.

David Meates, in charge of more than 10,500 people as CEO of both Canterbury and West Coast district health boards, earned between $600,000 and $609,000 for 2017-18.

Baxendale will be in charge of around 2900 staff at the city council, while Mulder has 1350 people under him.

Development Christchurch, however, has just 11 staff, yet boss Rob Hall still earned $309,000 in the 2017/18 year.

Otago University accountancy expert Dr Helen Roberts argues public sector pay should not be compared with remuneration in the private sector.

Regenerate Christchurch employs 13 people while CCHL itself has just five staff, three full-time and two part-time, yet CEO Paul Munro was paid $357,700 in 2017/18.

VALUE FOR MONEY?

Some feel such salaries are beyond the pale for chief executives in public sector roles.

The Public Service Association (PSA), New Zealand's largest union, representing more than 70,000 workers, argues that state sector reforms over the last 20 to 30 years have caused public service CEO wages to mimic the private sector model.

'The argument was that these were the kind of salaries you had to pay to attract the right kind of chief executives in a global market, and this is just what they're worth,' PSA national secretary Glenn Barclay said.

'We think there is no need to try and match excessive salaries paid to private sector CEOs, because the public service ethic and the commitment to a career in public service should be more important.'

Barclay highlights the gap between the lowest and highest paid public servants as an important issue amid growing concerns about inequality, and the PSA has criticised some pay rises for public sector bosses in recent years.

'Our members have struggled to get decent pay increases over the past decade compared to some of the increases their CEOs achieved, or to the increases paid in the private sector.

'However, this is beginning to change. We have begun to achieve better bargaining outcomes, often supported by industrial action, and a change in policy by the State Services Commissioner has in 2017/2018 seen pay rises for those at the top of the public service decreased significantly compared to the previous year.

Christchurch NZ CEO Joanna Norris has not seen her pay change since taking up the role in October 2017.

'We are very supportive of this approach by the SSC and with the elimination of performance pay bonuses for public sector chief executives, I am confident we will see further progress over time.'

SPIRALLING SALARIES

His concerns are echoed by Dr Helen Roberts, an accountancy and finance expert from the University of Otago who has studied chief executive pay stretching back more than two decades.

Her research reveals that in private businesses listed on the New Zealand stock exchange, CEOs are paid 30 to 50 times more than the average wage.

Over half earned at least $500,000 a year, compared with the average Kiwi salary of $60,000, based on 2013 figures.

Dr Roberts also found that between 2011 and 2018, average pay for chief executives in the public sector – based on analysis of 160 organisations such as DHBs, ACC, and educational organisations, but not regional councils – increased 29 per cent to $432,515.

This is less than half the $1 million average CEO salary in the private sector.

Canterbury Employers' Chamber of Commerce head Leeann Watson believes competitive financial packages are vital to attract the right candidates for senior roles, even in the public arena.

In 2018, the annual pay for a public sector worker based on an hourly rate was $61,693 – meaning Karleen Edwards' salary of $414,987 was almost seven times higher, and Dawn Baxendale's salary of $495,000 would be over eight times higher.

Roberts told Stuff: 'Public sector managers are not subject to the same risks as those present in the private sector.

'There is no market disciplining mechanism like that of financial markets, where share prices will move subject to changes in the underlying assets of the firm.

'They cannot go bankrupt, they will not be at risk of being taken over, they are not concerned with cash flow to pay employees on time, there is no focus on creation of wealth and public sector managers do not compete in globalised markets.

Canterbury and West Coast District Health Board CEO David Meates has more than 10,000 people under him, more staff than any other public sector boss in the region.

'Their employment environment is quite different to that of a private sector counterpart so to argue for a pay level similar to that of a role in the private sector is not warranted.

'Further, to argue for a pay level similar to that of a previous employment position – in a different country – is also not relevant to the pay setting process.'

Others disagree, suggesting market forces can dictate higher salaries – and point out that public sector salaries are dwarfed by those in the private sector.

Spark managing director Simon Moutter earned $2.82 million in the year to June 2018, plus a bonus of $1m.

Councillor Yani Johanson has long campaigned against high chief executive salaries.

Former Fonterra CEO Theo Spierings received around $3.5m over the same period, while Fletcher Building boss Ross Taylor reportedly earned $2m after starting in November 2017.

MARKET FORCES

Canterbury Employers Chamber of Commerce chief executive Leeann Watson argues that the role leading the city council is 'vital' for Christchurch's future and its regeneration.

'In order to attract the right calibre, the right skills, the right experience, the salary package needed to be a commercially competitive one.

'It's a pretty tight labour market out there, and this role I imagine requires some very specific experience.

'It's certainly a big salary, there's no doubt about that, but recruitment is incredibly challenging for all organisations, even more so for the public sector where they're under the spotlight.'

Watson suggested it was important to ensure strict accountability and performance monitoring is in place.

'These are not the Fonterras of the world, and I think we need to make sure there is some perspective put on that,' she said.

'But we've also got to understand that these roles carry increased responsibilities, increased risks and reputational risks across the city as well.

'Maybe there needs to be a bit more transparency around accountability and performance across those organisations as well. It can always be improved.'

But others are not convinced by the argument that 'market forces' should be allowed to let salaries spiral.

Christchurch councillor Yani Johanson has been critical of high public sector chief executive pay for years, earning himself a personal grievance from Marryatt in 2012 after joining the protests against his salary.

Now he is one of the four councillors – along with Deon Swiggs, Aaron Keown and James Gough – who voted against Baxendale's salary.

Johanson, a former CCHL director, believes there is a 'major structural issue' over how public sector salaries are set.

He told Stuff: 'I find it frustrating that there always seems to be more money to give out to those at the top, the least in need, while there being so little, if any at all, to those at the bottom, the most in need.

'A clear example of this is the living wage issue within the council companies, whereby it could have been cost neutral and implemented immediately if substituted for the rise in senior executive pay.

'I think the public are rightfully becoming increasingly concerned at public sector salaries that lack any justification because of the process of how they are set.

'It appears this process spirals the salaries up and never down based on paying more than what the last person got so as to get the person you want for the job regardless.

'There needs to be a refocusing of the public sector entities away from the corporate culture back to a public service ethos.'

HOW CHRISTCHURCH'S PUBLIC SECTOR CEOs ARE PAID

1. Christchurch City Council, 2889 staff – Dawn Baxendale: $495,000 plus $30,000 relocation fee, up 22.7% on Karleen Edwards' 2016 pay of $403,397.

2. Christchurch NZ, 75.3 full-time equivalent staff – Joanna Norris: $325,000 in 2018, plus $9,337.50 KiwiSaver contributions. No change.

3. Orion, 556 staff (including subsidiary Connetics) – Rob Jamieson: $675,000 in 2019, down 5.59% on 2016 pay of $715,000.

4. Christchurch Airport, 224 FTE staff – Malcolm Johns: $836,360 in 2018 including $24,360 KiwiSaver, up 27.39% on 2016 pay of $656,500.

5. Lyttelton Port Company, 590 staff – Pater Davie: $991,000 forecast for 2019, up 8.78% on 2016 pay of $911,000.

6. Ōtākaro, 60 staff – John Bridgman: $574,000 in 2019, up 7.49% on predecessor Albert Brantley's $534,000 to 2017.

7. Citycare, 1350 staff – Onno Mulder: $575,000 for 2018, down 1.71% on 2016's $585,000.

8. Enable, 159 staff – Steve Fuller: $934,000 in 2018 plus $30,000 KiwiSaver, up 47.08% on the $635,000 and $19,000 KiwiSaver he earned in 2016.

9. CCHL, five staff – Paul Munro: $357,700 in 2018 plus 3 per cent KiwiSaver, up 2.2% on the $350,000 and same KiwiSaver earned in 2017.

10. Development Christchurch, 11 staff – Rob Hall: $313,944 in 2019, up 4.65% on 2017's $300,000.

11. Red Bus, approximately 240 staff – Paul McNoe: $303,250 in 2018, up 0.08% on 2017's $303,000.

12. Regenerate Christchurch, 13 staff – Ivan Iafeta: $300,000 in 2019, no change from previous years.

13. Environment Canterbury, 642 staff – Bill Bayfield: $416,099 in 2018, plus 3% KiwiSaver, up 2.23% on his $407,018 salary in 2016.

14. Canterbury and West Coast DHBs, 10,500 plus staff – David Meates: $600,000 to $609,000 in 2018, up 3.39% on his $580,000 to $589,000 salary in 2016.