NBN defends its privileged salaries as Rem Tribunal told to rethink pecking order

By Harley Dennett

February 6, 2018

In order to achieve the government’s objectives, it must match the skyrocketing executive remuneration and incentive bonuses offered by the largest Australian businesses, NBN Co has told a senate committee.

While NBN Co’s executive salaries — ranging from $1 million for its Chief Network Officer, up to $3.5 million for CEO Bill Morrow — are exorbitant compared with most government enterprises, Morrow (pictured) doesn’t even rate in the top 10 Australian CEO salaries despite leading “Australia’s largest ever infrastructure project”.

“It is in the interests of our shareholders and the Australian public that [NBN Co] is able to attract, motivate and retain the calibre of executives required to achieve the government’s objectives by 2020 and beyond,” wrote its government relations general manager Christopher Willcox. He added that NBN Co operates in a commercial market for talent and requires flexibility to benchmark salaries against similar entities in the corporate sector.

With an annual loss of more than $4 billion, and the government its only upset shareholder, there is no sign NBN Co will ever suffer consequences like a corporate entity would with similar market performance.

No flexibility for APS

On the table is a private members bill that would cap taxpayer-funded executive salaries to five times the average earnings of full-time adults, in the order of $420,000. The bill has almost no chance of proceeding in this parliament, but observers are monitoring if Labor members propose an alternative.

The Community and Public Sector Union is wary of “blunt instruments” like wage caps, complaining in its submission that rank and file pay has been suppressed by a strict wages policy since 2014, but is sympathetic to the proposed aims:

“There is a growing income divide in Australia and the difference between the incomes of ordinary workers and executives is obscene in some instances. This is particularly so in the private sector. But even in the public sector, there is a gulf between APS level and executive level (EL) salaries, and the salaries of senior executives. This has been exacerbated by pay freezes, a harsh bargaining round and strict wages policy for APS/EL employees. Incomes for senior executives and departmental secretaries have been increasing at a disproportional rate to the salaries of APS/EL employees.

“Something needs to change to ensure that all Commonwealth employees are paid fair wages that are commensurate with their skills, experience and the work they perform.”

Despite its concerns, CPSU said it might be fairer if executive salaries were linked specifically to wages of their own employees rather than all Australian wages, and for future pay rises for APS and EL employees to take account of the discrepancies between their wage growth and the extraordinary rises for SES employees.

Private market comparisons can misconstrue

Former departmental secretary and public service commissioner Professor Andrew Podger observed that the Remuneration Tribunal — which determines payscales for senior executives in the Commonwealth — has given too much weight to private market comparisons, “which are not particularly relevant or involve comparable work” and ignored the talent market that exists in the state and territory public sector.

State-tier governments were “clearly relevant and with which the Commonwealth is increasingly linked including through executive movements,” Podger told the committee.

“Given increasing community unease about the remuneration of some senior executives in the private sector, both in Australia and internationally, linking Commonwealth senior executive remuneration to that of senior executives in the top Australian companies also undermines the very purpose of the Tribunal to de-politicise the process as evidenced by this proposed legislation.”

Prestige is what you make it

The culture of public service is something the Tribunal seems to have been missed in how public service executive salaries are structured, Podger notes, despite tapping the expertise of a former secretary for a review of the work value of departmental secretaries.

“It refers to the ‘prestige’ of high public service, but not to the much broader and widely researched notion of ‘public service motivation’ and a culture that inevitably emphasises service, public goods and equity. These all may moderate the need for remuneration to follow private sector practice, albeit that it is essential to attract and retain the best and the brightest.”

The Remuneration Tribunal should reconsider its entire approach to executive salaries, Podger recommends, including how it differentiates between secretaries of higher and lower prestige portfolios: “A highly competent secretary may also succeed in making an apparently lesser office more effective and influential across government and a less competent secretary may cause an apparently greater office to be less effective and influential.”

Get rid of departmental secretary ‘pecking order’

The unique process of how secretaries are appointed, at the will of the Prime Minister, usually in batches following machinery of government changes, doesn’t seem to have been a factor in the Tribunal’s rationale for its staggered secretary pecking order — Podger urges future composition of the Tribunal include people with significant public sector management experience who would understand this:

“The Tribunal’s approach, rather than responding to the decisions of government and ensuring remuneration reflects secretary responsibilities, imposes an additional consideration: should this secretary be ‘promoted’ or should that one be ‘demoted’, when what they are simply trying to do is to appoint people (including by transfer) to the most appropriate positions. A recent [Mandarin] column highlights the point in its reporting of a new ‘pecking order’. I should be very surprised if the Secretary of PM&C endorsed [this] ‘pecking order’ even though it is based directly on the Tribunal’s remuneration determinations.”

Finally, no debate about public service executive salaries would be complete with a mention of the loss of tenure that was once the defining characteristic of public service heads. Podger fulfils, recommending further consideration be given “to the processes for appointment and termination of secretaries to place more emphasis on merit and less on political considerations noting that this would reduce the risk of loss of tenure and the compensation required in recognition of that risk.”

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