Remuneration is a key element of the employment relationship between employers and employees. Employers set remuneration levels to attract and retain the people they need, while staying within their financial means. In the State sector, annual remuneration adjustments are made through a combination of collective bargaining and internal organisational remuneration processes. These are influenced by Government’s expectations for pay and conditions in the State sector, the organisation’s delivery needs, wider labour market conditions and the department’s budget.
Sector comparison of wage movements
Wage movements across the economy have been slower since the global financial crisis in 2008/09, as indicated by movements in the Labour Cost Index (LCI)  produced by Stats NZ (see the graph below: Annual wage growth rates by sector).
Public sector annual wage movements tracked below the private sector over the six-year period, Sept-2010 to June-2016.In the following year to June 2017, annual wage growth in the public sector exceeded the private sector. Thereafter the results for the last four quarters reverted to the previous pattern.
Across the Public Service (core government departments), wage growth has been lower still since September 2009 apart from the spikes in 2013 and 2017 where the annual wage growth exceeded the private sector. Over the last eight years, June 2010 to June 2018, the Public Service wage rates grew at an average pace of 1.3% per year, compared with the annual average of 1.5% in the public sector and 1.8% in the private sector.
In the year to June 2018, the LCI measured an increase in wages and salaries of 1.4% in the public sector and 2.1% in the private sector. Within the public sector wage movement in sub-sectors varied: Public Service (up 1.3%), education sector (up 1.2%), health sector (up 0.9%) and local government (up 1.8%). By comparison, general inflation as measured by the Consumer Price Index (CPI) increased by 1.5%.
The graph in tab 2 above shows the LCI trend in salary and wage movements of selected sectors since March 2010, on a quarterly cumulative basis. Generally, the gap in wage increases widened between the public and private sectors. By 30 June 2018 (eight years and one quarter later), the public sector wages had increased by 12.5% compared with 16.3% in the private sector. The CPI increased by 11.3% over the same period (excluding the effect of the GST increase on 1 October 2010 from 12.5% to 15%). Within the public sector overall, Public Service wages increased by 10.7%, compared with 11.8% in the education sector, 11.0% in the health sector and 17.0% in local government.
Average annual salary in the Public Service
The collection of Public Service workforce data provides information on the full-time equivalent base salaries of staff in the Public Service as at 30 June each year.In 2018, the average annual salary was $77,900, an increase of 3.3% from the previous year. Private sector average earnings increased at a similar rate (3.4%) over the same period. These increases are affected by changes in the occupational composition of the workforce, movement in staff pay, service increments, merit promotions, performance-related increases, and salary differences between new and departing staff.The LCI results, discussed in the previous section, control for these issues and are therefore a better measure of changes in earnings over time>.
The trend since 2000 is shown in the graph below. Since the global financial crisis in 2008/09 Public Service annual salary growth rate has averaged around 2.4%, about half the average growth rate in the previous nine years.
Median salary in the Public Service
Median salaries measure the mid-point of the salary distribution (half of the employees are below or above this salary level). It is less affected than average salaries by a small number of employees with very high salaries. The median salary for Public Service employees was $67,000. The growth pattern is similar to that for average salaries, discussed previously.
Public Service average salary by seniority
As at 30 June 2018, 11% of the Public Service workforce were management staff, comprising 30 chief executives (excluding two vacancies), 1,103 tier 2 and 3 managers and 4,656 other managers. The remaining 89% (45,569) were non-management staff.
In 2018, the average base salary for the Public Service workforce as a group increased by 3.3%. The increase for non-management staff was 2.9% compared with 3.4% for management staff. The salary movement varied at different management levels as shown in the table below. Some caution is needed on the interpretation of annual average salary movement for the chief executive group. They tended to be volatile because of the small number in the group and are also impacted by the effect of compositional changes in arrivals and departures each year. Also, chief executive salaries are generally reviewed only once in the mid-term of a 5-year or 3-year contract rather than annually. In contrast, other employees normally have an annual salary review or adjustment as part of their employment collective agreements. SSC’s Senior Pay report has more accurate measures of how chief executive remuneration changes over time.
Base salary is used for general comparison because data for individual employees’ superannuation and performance pay are not collected in the HRC data collection prior to 2018.
Average salary ratios between management and other staff
The graph in tab 1 below shows the ratios of average base salary for the four management levels compared to non-management staff. These ratios have been quite stable over the last six years except for the chief executive group. In 2018, the average base salary of chief executives in the Public Service was 5.8 times that of non-management staff (down from 6.4 times in 2013). The ratios for other management levels were: tier-2 manager at 4.0, tier-3 manager at 2.7 and other manager at 1.7 times relative to non-management staff.
When comparing the average base salary of chief executives to the rest of the staff (including managers) the ratio was 5.3. This ratio has been decreasing slowly from 5.8 in 2013).
These Public Service CE/Staff pay ratios are modest compared to the market ratios of publicly listed New Zealand firms, where CEOs are now estimated to be paid 30 to 50 times more than the average wage of workers, according to the recent research on New Zealand pay ratios by Dr Helen Roberts at the Business School of Otago University.
Average salary by occupation
How much an employee is paid can be influenced by the job size and responsibility of the role. Occupation type is a key factor that influences employee salaries.
Average salary varies widely amongst different occupations in the Public Service as shown in the graph in tab 2 above. In June 2018, the average salary was highest for Managers ($136,300), followed by Policy Analysts ($99,400), ICT Professionals and Technicians ($93,400), Legal, HR and Finance Professionals ($90,600) and Information Professionals ($84,600). By contrast, Social, Health and Education Workers ($65,200), Inspectors and Regulatory Officers ($62,900), Clerical and Administrative Workers ($60,000) and Contact Centre Workers ($52,900) had the lowest average salaries.
Some of the lower and higher paid occupations are more prevalent amongst certain gender or ethnic groups. The different occupational composition within the gender and ethnic groups will have an impact on their pay gaps, which are discussed separately in the Diversity and Inclusion chapter.
Average salary by Public Service department
The average salary varies widely among departments as shown in the graph above in tab 3. As at 30 June 2018, the average salary (excluding chief executives) ranged from $67,800 (Ministry of Justice) to $141,200 (Pike River Recovery Agency).
Departments that have a higher proportion of staff in operational and service delivery jobs tend to have a lower average salary, e.g. Ministry of Justice, Ministry of Social Development, Department of Corrections, Department of Conservation and Orangi Tamariki-Ministry for Children.
In contrast, agencies that have a larger proportion of staff in leadership and policy roles tend to have a higher average salary (e.g. SSC, Ministry of Defence, The Treasury, Ministry of Transport and Department of the Prime Minister and Cabinet). The Pike River Recovery Agency comprises a small team of 15 mainly professionals in specialist roles.
Employees who earned over $100,000
In addition to the HRC data collection, the SSC also conducts an annual survey on remuneration of Public Service and State sector chief executives, as well as the number of staff who received total remuneration of $100,000 or more.
Cabinet agreed that remuneration paid to Public Service and State sector senior staff should be disclosed annually in one location. This provides transparency for the taxpaying public around the level of remuneration received by senior State servants. The total remuneration of individual chief executives in 2018 is to be published in the Senior Pay Report on the SSC’s website later in the year.
The numbers of staff (excluding chief executives) who received $100,000 or more in total remuneration (including base salary plus any superannuation, performance and redundancy payments) are shown in two tables below, one for tertiary education institutions and the other for Public Service departments and selected Crown agencies. As salaries increase each year, more and more employees are moving into the $100,000+ income bracket.
The number in the Public Service and selected Crown entities group increased by 1,144 or 12.2% in the year to 30 June 2018. This increase was partly due to the impact of redundancies and structural changes within agencies, as well as the addition of the New Zealand Security Intelligence Service and the Pike River Recovery Agency.The number of employees in the tertiary education institutions group increased by 517 or 7.8% in the academic year to 31 December 2017. Wage inflation will increase the number of staff receiving more than $100,000 each year as people move up the salary scale.
Personnel expenditure in Crown agencies
The Treasury publishes annual Financial Statements of the Government of New Zealand each year. These statements include personnel expenditure, which covers total remuneration paid to employees. It includes payments such as salaries, employer contributions to superannuation, long service leave entitlements, performance and severance. Personnel expenses for core government agencies increased by 5.2% to $7,249 million in the 2018 June year, while the total Crown personnel expenditure increased by 4.8% to $23,690 million as shown in the table below.
|Personnel expenditure in core Crown and total Crown, June year 2013-2018|
|Core Crown* personnel expenditure ($m)||$6,037||$6,232||$6,552||$6,666||$6,890||$7,249|
|Annual Change (%)||2.1%||3.2%||5.1%||1.7%||3.4%||5.2%|
|Total Crown**personnel expenditure ($m)||$19,935||$20,484||$21,124||$21,952||$22,599||$23,690|
|Annual Change (%)||2.4%||2.8%||3.1%||3.9%||2.9%||4.8%|
*Core Crown - includes Public Service departments, Offices of Parliament, the NZS Fund and the Reserve Bank of NZ.
**Total Crown - includes the core Crown plus Crown entities and State owned Enterprises.
Salary cost in the Public Service
Expenditure on base salaries is the single largest component of personnel expenditure (others include superannuation, performance payments, redundancy costs, etc).The total salary cost shown in the chart below is calculated by multiplying each employee’s annualised salary by the FTE employed for the year, and then summed over all employees in the Public Service.These are approximate annual salary costs and do not represent total personnel expenditure. The total base salary cost in the Public Service increased by 8.6% ($307 million) to $3,885 million in 2018, up from $3,578 million in 2017. This was driven by a 5.2% increase in FTE staff numbers and a 3.3% increase in average salary.
Salary cost by occupation
Total salary cost by occupation group is calculated by multiplying each employee’s annualised salary by the FTE employed for the year, and then summed over all employees in that occupation group. The Manager group had the largest cost at $781 million in the year to 30 June 2018. The second largest cost was for the Inspectors and Regulatory Officers group at $661 million, followed by the Social, Health and Education Workers at $585 million. These three groups accounted for over half of Public Service employee salary costs.
The largest increase in salary cost by occupation group was for Managers (up $78m or 11.0%), followed by Contact Centre Workers (up $44 million or 22.4%) and Social, Health and Education Workers (up $39 million or 7.2%). They accounted for over half of the increase in total base salary costs.
Performance payment is defined as a one-off payment to staff in recognition of exceptional effort and results in current job or additional effort beyond current job requirements. In the year to 30 June 2018, 2.7% or 1,398 Public Service employees (excluding chief executives) received a performance payment with the average value of $3,000 (refer to table below in tab 1). Senior staff are more likely to receive a performance pay and a larger amount.
Twenty departments (out of 32) made performance payments in 2018. Over half (55%) of employees who received performance pay were from three departments (MBIE, MFAT and DIA).
The large decrease in the number of performance payments in 2014 reflected a change in the remuneration system at the Ministry of Social Development.
The Government’s expectation is that performance pay will be removed over time. This will be reflected in future reporting.
As at 30 June 2018, 90.3% of Public Service employees were members of at least one employer-subsidised superannuation scheme (up from 88.8% in 2017). The majority of staff (74.7%) belonged to KiwiSaver, with 16.1% in the State Sector Retirement Savings Scheme (SSRSS). Membership of KiwiSaver has increased steadily as new employees join the Public Service and are auto-enrolled to the scheme. SSRSS and the Government Superannuation Fund (GSF) schemes were closed to new members in 2008 and 1992 respectively and the number of employees in those schemes is decreasing gradually as members leave the Public Service. The graph in tab 2 below shows the trend of Public Service participation in superannuation schemes over the last six years (2013-2018).
In the year to 30 June 2018, 380 employees in the Public Service were made redundant (down from 395 in 2017). The average redundancy payment was $79,000 (up from $49,000 in 2017).This increase is mainly due to the number of redundancies in Inland Revenue (164) resulting from their large transformation programme.
The total cost of redundancy increased by 55% to $30 million (from $19.4 million in 2017). Twenty three departments reported redundancies, with 67% occurring in four departments: Inland Revenue, Ministry of Business, Innovation and Employment, Ministry of Social Development and Ministry of Health.
 The LCI is an official measure of wage inflation. It measures changes in salary and wage rates that employers pay for the same job done at the same standard. The LCI does not reflect compositional change in the workforce, service increments, merit promotions and increases relating to performance.
Data covers Public Service departments (29 in 2017 and 32 in 2018), as well as seven selected Crown entities whose chief executives are under Remuneration Authority jurisdiction, including the Audit Office, Office of the Clerk, Office of the Ombudsmen, Parliamentary Service, Parliamentary Counsel Office, and Parliamentary Commissioner for the Environment. Data also covers tertiary education institutions (28 in 2016 and 2017).