Stopping the gravy train

Recent hefty salary increases for mayors begs the question of whether the Remuneration Authority takes into account the ability of ratepayers to pay, or the level of income adjustment received by the wider community.

For Hastings in just two years the Mayor moved from $106 100 to $117 700 or 11%. while the 10% for Napier was from $100 200 to $110 300. The latest official figures reveal salaries and wages for the entire country averaged just 2% in the past year and about 4.5% for two years confirming the impression the rich are gaining faster than the rest. Recent tax adjustments have further tipped the balance in favour of the already well paid.

A significant reason for this disparity is the use of surveys to ascertain salary and wage movements. Each survey reveals significant increases for those already well paid executives, directors and others, thereby justifying further increases which are then in turn picked up by subsequent surveys, to become the justification for yet another round of upward movements.

The system is a salary escalator feeding on itself to continue rewarding the already well rewarded individuals. Those at the bottom including superannuates receive only small increases because the surveys show only minor changes, a pattern repeated for many years. In the latest round councillors in both Hastings and Napier received a nil increase. While the survey system was once equitable because all incomes were moving upwards at about the same rate this is no longer the case.

The problem is not isolated to New Zealand. The US census bureau reports the average income for American families has dropped for three consecutive years, yet compensation for executives has risen by 15% in 2011 helped by rising share prices because options and stock are a significant part of many packages. For 2010 the increase was a massive 28%.

The Gini coefficient developed by Italian statistician Corrado Gini reveals inequality has been growing in most countries since 1990. 

No individual can be blamed but those who could make a difference such as Mayors, local government chiefs, company CEO's and directors, MP's plus many other highly paid members of this club are understandably disinclined to do so.

To improve equity two things must happen. Increases must be significantly less than the full surveyed movements, and at the same time new indices are needed to take into account the performance of those in charge. For instance in local government one factor might be rates. For every point rates are below or above inflation, salaries would be adjusted by the same amount in the opposite direction. Other measures could be economic growth, unemployment, visitor numbers, debt, community income levels, and so on.

Such a change would disrupt what is currently a very comfortable gravy train and as a result provide some equity to the many on lower incomes who are now meeting the bulk of the cost of excessive salaries.