27 January 2012

A solution to excessive council CEO salaries

If you've been following New Zealand news recently you will have heard the furore about the salaries of council chief executives, and the annual increases that some of them have been receiving. The loudest debate has been over the 14.4% pay rise handed to Christchurch council head Tony Maryatt in December - his salary was increased from $470,400 to $538,529, which is a gross salary of over $10,000 per week. Certainly, running the Christchurch City Council in the seemingly endless aftermath of the terrible Canterbury quakes is a challenging and no doubt stressful job, and few would begrudge the holder of that position a healthy salary. But there has been widespread disquiet over the size of the salary increase - a rise of $68,129 - at a time when many of the vital services usually offered by a city council are still offline and when the rebuilding of Christchurch has still yet to commence, many months after the fatal quakes.  

TV3 quoted Maryatt in bullish mode on 5 January, arguing that he was worth the raise:

"I'm not refusing the pay offer and I'm not giving it to charity. That is on the principle that I feel I should be paid the market remuneration for the job and what is appropriate for my level of performance," he told The Press. Mr Marryatt said he expected his pay rise to cause controversy. There was a protest at council headquarters and "a barrage" of critical letters in The Press. "Any time I have a pay increase there is always negative comment because for most people what I earn is an exorbitant salary and any percentage increase on an already-large salary gets to a sizeable amount," Mr Marryatt said.However, his job was bigger than average - running a council with 3000 staff and a $1 billion-a-year budget while at the same time trying to manage recovery from the destructive September and February earthquakes, he said. "My job has grown immensely ... The benefit is for the city if they have a motivated and high-performing CEO," he said.
Perhaps Maryatt is right, and he is being paid in accordance with the importance of the position he holds and the issues he is responsible for. Perhaps his motivation levels are so fluid that if the people of Christchurch neglect to give him a 14.4% pay rise his productivity and effectiveness will sag drastically, thereby undermining the vital recovery of New Zealand's second-largest city. This is not a view I hold, but Maryatt should be able to advance his arguments and have them debated on their merits. However, the manner in which he phrased his rebuttal of criticism of the pay rise only served to exacerbate public disquiet about his remuneration. Wednesday's Waikato Times editorial pointed out that Maryatt, who came to Christchurch from the CEO's role in Hamilton, was being consistent with his previous form, but that under the present circumstances this was a grievous error of judgement:

There are echoes from Mr Marryatt's time in Hamilton, where his pay rises were always controversial. He would always staunchly take the view that he was worth the money and was only getting salary increases commensurate with other comparable chief executives. He was certainly an extremely capable chief executive. But in Christchurch, a city devastated physically and psychologically, such an argument cannot be justified. Given the circumstances, Mr Marryatt should have quite simply declined a pay rise of this magnitude. 

Finally the penny dropped, and Maryatt announced earlier that he had instructed the council to cease paying him the pay rise from today. (Note that while the pay rise was backdated when it was introduced, its rejection was not backdated).

This focus on Christchurch is not to suggest that the pitchforks and blazing torches are just blazing a trail for Maryatt's castle doors. Elsewhere in the country tempers have been raised by the ever-increasing salary packages for council chiefs. In the city Maryatt left in 2007, Michael Redman also attracted controversy by resigning the Hamilton mayoralty in 2010 after three and a half years in order to take up the (more highly-paid) position of chief executive of Hamilton City Council. (There's also the small matter of the V8 race controversy, which is yet to be resolved). The Dominion Post also weighed into the debate on Wednesday with the news that the chief of the Kapiti Coast District Council, Pat Dougherty, recently received a $44,000 salary increase, taking his pay from $241,000 to $285,000. 

The DomPost article also included a handy list of council chiefs from across the region and their salary increases, many of which were considerably greater than those received by average New Zealanders. And it turns out that if you want to be a council chief executive, your surest guarantee of success is the possession of a penis. Of the 20 councils who responded, 19 were run by men, as were the two councils that neglected to reply to the newspaper's queries - Hawke's Bay Regional Council, and Napier City Council - so that's 21 men out of 22. 

A Kapiti councillor, defending his vote in favour of Dougherty's pay increase, cited the common justification for such rises:

Councillor Ross Church defended the pay rise, saying the council had consulted experts. "We were advised the salary should sit at $285,000, and making an arbitrary decision would not follow due process," he said.
I have no reason to doubt that a due process was followed in Kapiti, or indeed in any other local authority. The same justification was used in Christchurch to explain Tony Maryatt's salary package - sure, Mayor Bob Parker said, it may be a lot of money, but it was good value for money, and if you pay peanuts, you get monkeys. 
This idea that council chief executives possess extraordinarily rare skill sets that should command ever-increasingly enormous salaries is a relatively recent phenomenon. Certainly, as Maryatt pointed out, the man (and generally it's a male, as we've seen) in charge of, for example, '3000 staff and a $1-billion-a-year budget', as in Christchurch, has got a lot on his plate. And specialist consultants whose job it is to advise councillors on chief executive remuneration packages are doubtless wont to cite the ever-increasing amounts paid elsewhere in New Zealand and Australia, which leads councillors to believe that the only way to attract and retain high quality chiefs is to pay them many hundreds of thousands of dollars per year. After all, if they were running the same sized organisations in the private sector they'd be being paid millions, right?
And that's where the rationale falls down, because councils are not businesses run for profit. Their business is public service, and the people who run them are public servants. The skills required to run a successful council are not rare or mystical - they are gleaned by working in the bureaucratic environment for decades, learning the ropes and gaining a practical understanding of how things actually work on the ground: what businesses need to thrive, what ratepayers need to get on with their lives, which schemes are valuable and which ones are potential white elephants. We've had generations of this sort of council leadership, and it wasn't expensive. The current focus on the ever-increasing council chief executive marketplace assumes that CEOs are irreplaceable and that their skills must be bought with bags of gold.
This reliance on a faulty market model was perfectly exemplified in the state broadcaster TVNZ, which became so fixated on the importance of retaining broadcaster Paul Holmes that his salary package skyrocketed to unfathomable and politically unsustainable levels. The Herald reported in 2009 that back in the days when newsreader Judy Bailey commanded an $800,000 salary, which brought about a public outcry, money was apparently no object:
In the Bailey era, Paul Holmes was earning around $700,000 for his 7pm Holmes show on TVNZ, while an attempt to cut Susan Wood's $450,000 salary by $100,000 resulted in her leaving the broadcaster.
A world in which Susan Wood was worth $450,000 is clearly not one I'm familiar with. What was the upshot of these huge pay packets? The state broadcaster eventually called the talent's bluff. Holmes and Bailey were set loose, and while Bailey chose to retire gracefully, Holmes was given the chance to see if his 'market value' was actually worth the amount he was being paid, and it turned out it wasn't. (He went back to his highly successful radio career and eventually returned to TVNZ, presumably on a much smaller salary).  
How could a similar market correction come about in the world of council chief executives? Satirist Joe Bennett, clearly riled by the Maryatt salary ructions, offers a reality check:

People elect a mayor as a figurehead for the city. And they elect councillors to represent their views. The mayor and councillors together form a council. The council employs a town clerk, tells him what the people want done and gives him the rate money to do it with. The town clerk then employs a workforce to do it. The town clerk's job is not to be another figurehead, whose strong and sympathetic hand we can learn to love and trust. His job is to do as he's told by the councillors. Invisibly, clerically and efficiently.

What sort of individuals could we call on to fulfil this town clerk role, to undercut the increasingly moneyed class of council chiefs whose salaries spiral ever upwards? The sort of person who used to do the job, that's who. Career bureaucrats who build up a lifetime of experience in public sector management. And - crucially - we target those skills in individuals who are keen to give something back to society, in recognition of the success they have attained. The sort of person who is located to run an important Royal Commission of Inquiry - senior civil servants, retired judges, savvy military nabobs. Ex-MPs, even. But the key determinant of suitability for the roles, apart from the general aptitude for managing budgets and workforces that many people develop over their careers, should be that the people selected have already achieved financial security in their working lives, and want to top off their careers with a final distinguished act of proactive philanthropy.

This might sound like Bolshevik radicalism, but I believe there are substantial numbers of respected potential administrators who would relish the opportunity to perform an important role before they retire, to give something back to their local communities. And the icing on the cake is the change I propose to the honours system to add a useful incentive. For those individuals who complete several years of such valuable service to their communities and the nation would be almost the only people eligible for knighthoods, or the equivalent honour should knighthoods be re-abolished. I say 'almost' because there needs to be an opening for genuine national heroes to 'bag a K' too, but generally speaking people should be aware that the only way to earn a coveted place in history as a knight of the realm is to work for it, and for the people of New Zealand. Not only would this quell the disquiet sometimes expressed about the worthiness of some individuals appointed to certain honours, but it would allow councils to reduce their chief executive remuneration to a much more modest honorarium.

So what do you think? Gongs instead of half-million salaries - would it work?
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