Paying for quality in a new public sector

Margaret Bazley's status says a lot about the changed role of managers in public service.

By Selwyn Parker

Honey, I shrunk the whole department. And got a bonus! The star status of Margaret Bazley, chief executive of the Department of Social Welfare and new chairwoman of the Fire Service Commission, says a lot about the changed role of top managers in the public sector.

These days the department is hardly recognisable from its old unwieldy self. A career public servant who started her working life as a psychiatric nurse and worked her way through increasingly tough jobs with the State Services Commission, 61 year-old Bazley didn't muck around.

First, she split off two major departments - Income Support and Tritec, the computer systems arm. That took 4,100 staff elsewhere. And in October, another 2,300 staff will be hived off when the Department of Child, Youth and Whanau Services is created. Thus near enough to 6,500 employees will have been separated from Social Welfare by the time the job is done.

When the door is finally closed on this exodus, Social Welfare will have been reduced to a total of just 200 souls who provide advice on policy and monitor the hived-off "delivery" organisations, to use Wellington-speak.

For reducing this whale to a tadpole, Bazley received, in common with other top-performing chief executives, an extra 10-15 per cent of her total remuneration package as a reward for performance.

All up, she banked something between $270,000 and $280,000 in 1998. The chief executive of the shrunken Department of Social Welfare was the third highest-paid public sector manager after the head of Treasury ($310,000 - $320,000) and head of Foreign Affairs and Trade ($280,000 - $289,000).

Later, she could be in line for a SIP, or extra bonus for meeting a strategic incentive plan under which public sector chief executives can be given rewards for meeting special Government-set priorities over a few years. The States Services Commission, which draws up and manages the remuneration of public sector chief executives, carefully monitors progress towards these priorities.

Details of the remuneration packages of public sector chief executives are only available because the States Services Commission has, in the interests of transparency, adopted the enlightened policy of publishing them in bands, similarly to publicly listed companies.

Among other things, this provides an easy guide to the pecking order of the 34 chief executives who come under the aegis of the State Services Commission. Lowest-paid is the chief executive of Pacific Island Affairs at $140,000 - $150,000. Grouped more or less together at bands between $180,000 to $200,000 are the chief executives of the Serious Fraud Office, Environment, Housing, Research Science and Technology, Courts, Customs Service, Education Review and Fisheries.

Only a handful of chief executives rank between $250,000 and $300,000 - Commerce, Education (different from Education Review), Inland Revenue, State Services, Department of the Prime Minister and Cabinet, Social Welfare, Foreign Affairs and Trade. Treasury is the only $300,000-plus band.

Behind these figures lies a revolution in public service remuneration. Until 1997, successive governments had persevered with the 10-year-old links to private sector remuneration, which were intended to attract top outside talent to the public sector. Despite the best of intentions, this didn't work very well because the rate for chief executives in the private sector went ballistic and the State Services Commission couldn't afford to compete.

But also, in the meantime, the nature of public sector chief executiveship changed dramatically. By the early 1990s, most of the quasi-commercial functions of the giant Government departments had been relocated to a variety of state-owned enterprises, Crown entities and other hybrids.

Thus hardly any giant departments exist today, Social Welfare being a good example. The remaining departments have highly specialised, very public-sector functions such as tax-gathering, policy advice and welfare which obviously require a special sort of chief executive.

According to American professor Allen Schick, who studied state sector reforms in New Zealand, the public sector chief executive has to be a "superperson who must act as if their own job is on the line and their own money is being spent", among other extra-terrestrial virtues.

So, to keep up with the changed nature of the job, the State Services Commission designed a remuneration package to match. The old remuneration structure of a base salary plus benefits has gone in place of a single-sum package that encompasses car, professional fees, super contributions, expense allowance, the lot.

Are public sector chief executives overpaid? The evidence is to the contrary. To some extent, the State Services Commission has to meet the market even though it has given up trying to compete with the private sector for chief executives. But it probably isn't. As the commissioner, Michael Wintringham, explains: "Sometimes, when in the final stages of making an appointment, I would like to have three or four candidates to consider, I have two."

The publicity attached to the compensation package povided to Paul Winter, the departed chief executive of the Tourism Board, has confused the issue of public sector remuneration. When Winter lost his job last year nearly two years before the expiry of his contract, he received a gross settlement sum of $579,423, not counting the $44,855 in expenses, allowances and accumulated leave.

Although tax was duly deducted at source, it sounds like an awful lot of money. However, there was nothing unlawful about the pay-out - it was in the contract. And anyway, the Tourism Board isn't one of the 34 ministries or departments that come under the State Services Commission. Perhaps it should, but it doesn't.

* Contributing writer Selwyn Parker is at wordz@xtra.co.nz