The board of New Zealand’s superannuation fund has come out swinging against proposed government restrictions on chief executive pay, suggesting they may breach the body’s statutory independence.
Super Fund board chairwoman Catherine Savage has argued the Crown entity should be exempted from the new rules, which she says would amount to an “implied repeal” of existing laws around superannuation.
In February, the Government announced it would tighten the rules around the employment of chief executives in the state sector and at Crown entities.
Under current law, some Crown entities must only consult with or “have regard to” the State Services Commissioner’s advice before approving a pay rise.
That became a source of controversy when the Guardians of the Super Fund approved a 36 percent increase for former chief executive and new Reserve Bank governor Adrian Orr in 2015/16, against the recommendations of both the State Services Commission (SSC) and then-Finance Minister Bill English.
The State Sector and Crown Entities Reform Bill would require statutory Crown entities to receive the written consent of the State Services Commissioner for the terms and conditions of a chief executive’s employment, while also introducing a fixed term of no more than five years.
‘Implied repeal’ of superannuation laws
In a submission to Parliament’s governance and administration committee, Savage said the legislation was inconsistent with both existing legislation for the board and “best practice principles of investment governance”.
“The proposed legislation creates greater risk for the Government by potentially politicising a critical governance decision and reducing accountability for the board.”
MPs needed to consider whether the legislation amounted to “an implied repeal” of the NZ Superannuation and Retirement Income Act, which gave the Guardians wide range to invest in the fund without interference.
“Attracting and retaining high-quality employees (including the chief executive) falls within the broad definition of ‘invest’ in…the NZSRI Act.”
With the Super Fund board on the hunt for a chief executive to replace Adrian Orr, Savage said the Guardians were mindful of the costs and risk of fund underperformance if they could not recruit somebody with the right skills.
Any amendments to the superannuation legislation required consultation with both political parties and the Guardians, she said.
Savage said the board understood the importance of accountability in the public sector, and provided “full disclosure” about the chief executive’s pay and bonuses through the consultation process.
She claimed the SSC had failed to provide the board with detailed information in the past regarding its objection to proposed pay increases.
“Instead, the commission provides a ‘public sector’ remuneration range, the source and content of which is unspecified, and without reference to the pools from which we source our expert talent, nor to the specific market in which the Guardians operates.”
With the board currently on the hunt for a chief executive to replace Orr, Savage said the Guardians were mindful of the costs and risk of fund underperformance if they could not recruit somebody with the right skills and experience.
Arguing for a carve-out
She argued for the Guardians to be excluded from the provisions related to chief executives. If that was not possible, a clause should be introduced preventing the State Services Commissioner withholding consent for a pay rise “if the reasons for doing so are outweighed by the entity’s need to employ and retain an appropriately qualified and experienced chief executive”.
Savage also objected to the requirement for a five-year appointment limit, which she said was “entirely inconsistent with the double-arm’s length independence and long-term nature of the fund”.
Both Savage and State Services Minister Chris Hipkins declined to comment to Newsroom about the submission, although Hipkins said officials had been invited by the select committee “to engage with Guardians on their submission”.
In February, Prime Minister Jacinda Ardern said the legislation would provide “more teeth” for keeping pay levels for crown entity chief executives with the wider public sector.
“What we want to see is consistency, but also meeting public expectations about what’s reasonable and the level of pay increases in the economic environment that we’re operating in at any given time.”