Editorial: Salary should reflect worth, not position

How much is a chief executive worth? A survey of salaries that we published this week has raised a question that has been recurring in public discussion in all rich countries since the global financial crisis. The subject has been spurred along by international research suggesting a widening income gap is economically damaging as well as socially iniquitous.

Occupy campers in financial capitals have been protesting at the rising share of national wealth in the hands of 1 per cent of the population, and every industrial dispute invites us to compare the modesty of workers' earnings with the six-figure salaries of those who are resisting their desired increase. At times like this it can be hard to keep high salaries in perspective.

Good leadership is crucial to the performance of any organisation. It can be easily taken for granted and undervalued, even resented, by those who work under its direction. But more often than not, the value of a respected, vigorous, clear-sighted leader who can make things happen is as apparent to staff as it is to those who need to hold the person accountable and approve the rates of pay.

The salaries we surveyed are in the public sector, which is wider than the public service and includes state-owned enterprises. It is interesting that the highest-paid chief executives on the table were those of Mighty River Power ($1.75 million), Solid Energy ($1.4 million), Meridian Energy ($1.2 million) and Genesis Power ($1.18 million). These are the very companies the Government wants to partially privatise, beginning with Mighty River.

It will be interesting to see whether those salary levels survive the scrutiny of boards answerable to private shareholders as well as the Government. For the present, though, it is apparent that public ownership can be a goldmine for those in charge of its assets.

The power companies are only the most glaring example. The chief executives of TVNZ ($910,000), Post Group ($830,000) and KiwiRail ($810,000) are also doing nicely, thank you. But their companies, like the power generators, have to earn their revenue against competition. It is harder to credit salaries around half a million dollars for the heads of ACC, district health boards, universities, crown research institutes, the larger city councils and Government departments.

Some routine posts in the public service are remarkably well rewarded. The Tertiary Education Commission pays its head $450,000, Radio New Zealand $340,000, the Charities Commission $240,000, the NZ Symphony Orchestra $230,000. And the outcry in Christchurch at the salary increase initially given to their council's chief executive appears justified. The $479,430, he receives is higher than the Auckland Council's chief executive ($442,413) or Wellington's ($406,230).

Too many public sector salaries appear to be tied to the position rather than the person, and all higher salaries in the sector are justified by the supposed need to compete with the private sector for executive talent. The private sector has its own problems. Our business commentator Brian Gaynor believes non-executive directors, particularly in the United States, have too readily acquiesced in excessive salary packages for executives. The consequences are felt throughout the global market for corporate leadership.

The increasing concentration of wealth is a trend that needs to be watched, but equally, the value of genuine leadership needs to be acknowledged and encouraged. Putting a figure on its value will never be an exact science but publishing the figures might help.