Money: Play hard to get in the pay rise game

By Mary Holm

Money Matters


Q. I intend asking the boss for a pay rise just before the end of March. What Money Matters ploys can I quote to help sway his decision in my favour?


For example:

* Does inflation have any influence?

* Or the state of the New Zealand dollar with regard to exporters?

* Or the fact that the average wage has leapt from $7 to $7.55?

A. In some ways working for a boss is like having a love affair. Telling your lover/boss how much more love/wages you need may not spark their interest nearly as much as letting them know you're looking around at other possibilities.

Your best "ploy" might be to say, "I've got another job offer." Trouble is, it had better be true, in case the boss says, "Take it!"

You say you haven't had a pay rise in the four years you've worked for him. And that a new employee is getting more than you for doing the same work. You also understand that your boss values you highly. This could mean that you're in a strong position to play a little hard to keep. While you might not want to leave, you could tell the boss you're thinking of looking around.

Or you could say inflation over the past four years (to December 1999) has been 4.4 per cent. And the average hourly wage (excluding overtime) has risen 11.4 per cent (November 1995 to November 1999).

Note, too, that the latest average wage is $17.44 an hour, according to Statistics NZ. The $7 and $7.55 you mentioned are legal minimum wages.

And given that the company you work for is an exporter, it's useful to know that the dollar's decline has probably been good for business.

Hope all of that helps you in your little chat with the boss. Good luck.

Q. Could you please comment on the following?


[The reader then lists several questions about WiNZ. For easier reading, they are reproduced below, followed by my answer.]

For those not in the picture, WiNZ is an AMP fund that invests in all the shares in an international share market index - about 270 of the biggest companies in the US, Britain, Germany, Japan, Canada and Australia.

(1) Discuss the exchange rate when buying in to say WiNZ. With a low $NZ to $US, any improvement in the $NZ would lower value on shares bought here in WiNZ?


A. Of course with our poor overseas current account it may be some time before the $NZ improves. But commentators have been predicting 58c by year end.

If you invest in overseas shares, or a fund that invests in those shares, you take the risk that your returns will be lower if the kiwi rises - relative to the currency of the overseas shares. On the other hand, your returns will be enhanced if the kiwi falls.

While the foreign exchange risk raises the volatility of your returns, the diversification you gain by investing in lots of countries lowers your volatility.

(2) Are there dividends earned from WiNZ? And any tax considerations?


A. Yes, WiNZ pays dividends, made up of the dividends from all the companies it invests in. WiNZ is not taxed the same as other New Zealand shares, and the imputation system does not apply. The fund pays international taxes on its dividend income. Sometimes it also pays New Zealand residents withholding tax, if the international tax hasn't been high enough.

On your tax return, you get credit for both the international and New Zealand taxes already paid. Don't forget that WiNZ is an index fund, it doesn't pay tax on capital gains.

(3) My time frame may be less than 10 years, say five. So is an indexed fund investment still on for a short/medium term?


A. The shorter the period, the bigger the chance that you will come out with less money than you put in. However, when you look at the MSCI index - on which the WiNZ index is based - it has fallen in only six of the last 300 60-month periods. All six falls were in the 1970s, and most were small.

A five-year investment is probably all right if you can cope with taking some risk.

(4) Does WiNZ cover the market? By its nature I understand it is indexed to the top capitalised companies and is not selective.


A. You're right, index funds aren't selective. They hold all the shares in an index. Quite often, though, they do better than selected shares and index funds are cheaper to run than funds that hold selected shares. WiNZ covers the market pretty well in that it is in six countries and many industries. It does, though, concentrate only on the world's biggest companies.

(5) For price competitiveness who would you suggest I buy the index funds through?


A. WiNZ units are shares, so you buy them through a share broker. You can get the cheapest deals through discount brokers or buying via the internet.

The best deal may depend on how much you're spending. Shop around.

(6) My investment advisor has been anti passive funds for some time - he says the time is not right (higher risks). Better direct or through active funds they say.


A. While your adviser has been discouraging, you've missed out on some fantastic returns in WiNZ and the like.

Are passive (or index) funds riskier? It's true they are at a tax disadvantage when the market falls, but they're at an advantage when it rises.

That increases their volatility a bit. But, considering the long-term trend is definitely upwards, they come off better in the long run.

Beyond that, riskier than what? If you compare them with funds that hold fixed-interest investments, of course they're riskier. If you compare them with other share funds, generally they're not.

I don't suppose your adviser would be influenced by the fact that she or he probably gets less in upfront and ongoing fees if you invest in WiNZ than if you go into many alternatives?

The adviser will undoubtedly deny that. But it's food for thought.

* Got a question about money? Send it to Money Matters, Business Herald, PO Box 32, Auckland, or e-mail: maryh@journalist.com.

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