InfraCore operates from a Vaughan Rd depot and Queens Dr nursery and maintains Rotorua's gardens, parks, reserves and cemeteries as well as the city's water and wastewater networks and land drainage systems.
Mr Hammond confirmed to the Rotorua Daily Post the first proposal set out market rates for the work being done.
He said the proposal reduced the pay for 27 staff and a further 27 or so would have pay increases.
Overall the proposal meant InfraCore could reduce its costs, enabling it to be more competitive, he said.
Mr Hammond said the council was answerable to ratepayers and needed to be cost effective business.
He said InfraCore could potentially tender for contracts outside of Rotorua if it was more competitive, allowing it to grow the business and employ more staff.
He didn't want to comment on how staff members' salaries had become "out of kilter" as that was an "inherited" issue.
"We have to manage it as compassionately as we can but if we don't do something about this, the wheels will come off. We want to look after the staff but we can't stick our heads in the sand.
"We now have to work on solutions but the problem doesn't go away and we would be irresponsible if we didn't address this."
Northern Amalgamated Workers Union regional organiser Robert Popata said he had several people in the water services area who were underpaid and were being shoulder-tapped by other organisations.
"It might be perceived they are robbing Peter to pay Paul but it's not quite like that. It's more if you don't pay your skilled workers more they will walk."
First Union organiser Phil Graham said legally InfraCore couldn't reduce staff members' salaries, however, it could ask, which was what it had done with its first proposal.
While it was rejected by the unions, Mr Graham said staff were now worried they could get made redundant.
He said the reduction for some was up to $6000 and in some cases even more.
"They are trying get our members to agree to going to a flat rate document and claw back all the allowances such as over time provisions that these people have been paid for years."
Council chief executive Geoff Williams said InfraCore was set up three years ago as a result of a need to work more "efficiently and effectively" to ensure ratepayers were getting value for money.
He said while there had not yet been an overall saving to ratepayers, he believed the level of service had improved.
"InfraCore is doing a superb job. If you look at Kuirau Park the standard of work has significantly gone upwards. Same for Government Gardens."
Mr Williams said InfraCore had a responsibility to pay its staff fairly.
"At the end of the day, InfraCore is in a competitive environment. If we want to try and keep our staff we have to make sure they are fairly paid because people always have choices."
