Private sector struggles to attract quality staff;
Public sector chief executives again earned more than their private sector counterpart Fiona Robertson

Sheffield's annual executive pay survey has highlighted the difficulties facing the private sector in attracting and retaining quality staff.

Aside from cashed-up private equity firms, which are offering huge performance-related pay packages, private sector companies are struggling in a tight labour market.

And Sheffield's survey showing public sector chief executives earned more than their private sector counterparts for the second year running should be ringing alarm bells.

Sheffield's reward team leader Jarrod Moyle said the company held off publicising those findings last time.

"We thought maybe it was just a blip in the data," he said.

But the results were repeated this year, and showed the median salary package of a public sector chief executive was $255,000, compared with $248,291 in the private sector.

"It clearly puts paid to the myth that if you want to earn good money, you need to work in the private sector," Mr Moyle said. Recent above-inflation pay rate rises in the state sector have been causing concern in the Treasury, as NBR reported earlier this year (March 9, 2007).

The Treasury advised that further pay rises in the sector needed to be moderate and justifiable.

"This is particularly relevant in an environment where inflation is already above the

Reserve Bank's target rate of 1-3%," it said.

But rising remuneration often reflected inflation changes rather than leading to them, Mr Moyle argued.

"The remuneration is just one aspect of the increase in public sector spending that we're seeing," he said.

BNZ senior markets economist Craig Ebert said the survey had to be taken in perspective as just one example of the issue of wage inflation.

"We're talking about scores in a workforce of millions," he said.

Although he said it was hard to draw clear inflation trends from the survey, the results aligned with broader indications that public sector wages were running faster than the private sector.

"It does underscore the reality that the public sector has deep pockets. In many respects it's hard for the private sector to compete with that," he said.

For example, it was becoming more difficult for private sector Wellington firms to get staff.

National Party state services spokesman Gerry Brownlee said while the public sector demanded good workers, who should be paid what they were worth, pay rates needed to be linked to productivity.

"In a private company, the shareholders will hold the chief executive or the general manager to account," Mr Brownlee said.

The survey also found New Zealand continued to lag in uptake of performance pay.
Only 56% of chief executive officers received some form of performance-based pay in 2006, down from 69% in 2003.

Performance-based pay made up just 14% of their total remuneration package, compared to an average of 39% for offshore chief executive officers' packages.

Performance-related pay could see chief executives earning more, as well as making them more likely to perform better, Mr Moyle said.

"While we don't want to emulate the corporate greed we sometimes see offshore, we do need a greater drive among our leaders to achieve business success," he said.

He said the low performance components could be partly due to the low level of salary disclosure required by New Zealand-listed companies, compared to other countries, leading to "a big mystery" around levels of executive pay.

Image: Jarrod Moyle

JARROD MOYLE: It puts paid to the myth that if you want to earn good money, you need to work in the private sector

March 29, 200