Minister Nicola Willis says public sector chief executives will pay bonuses for more than 12 months

Minister Nicola Willis says public service directors will not see the National and Act policy of offering performance bonuses implemented for at least a year.

Willis, the Minister for the Public Service, told Parliament’s Governance and Administration Select Committee today that she had not yet made a decision on how the policy would be implemented, and estimated it would be “a few months” before Cabinet made a decision on the matter.

Because the increases will be linked to progress on the government’s nine public service targets, Willis said any increase would have to be based on at least 12 months of work towards achieving those targets.

“I wouldn’t expect any performance bonuses to be paid for at least a year.

“We want to see where leaders are able to demonstrate that they have taken specific actions, implemented specific policies that have had a measurable impact on those goals.”

However, the prospect of this policy including some form of punishment if adequate progress was not made, such as a reduction in the CEO’s salary, was not on Willis’ mind, who argued that the Public Service Commission had appropriate powers to “manage poor performance”.

“I have no ability to change existing contracts.”

In 2018, the then Labor-led government abolished performance bonuses of up to 15 per cent, with then minister Chris Hipkins wanting public services motivated by “community spirit”. He argued that international research has shown that bonuses do not encourage better performance.

It was reported at the time that the move, along with other measures such as appointing new chief executives with lower salaries, reduced annual expenses by up to $4 million.

Both National and Act have campaigned for the return of performance pay to public service directors ahead of the 2023 elections. National’s proposal also included deputy chief executives, while Act’s policy was intended to leave ministers free to award bonuses based on an agreed set of KPIs (key performance indicators).

The National and Act coalition agreement did not specifically address this policy, but pledged to amend the Public Services Act 2020 to “clarify the role of the public service, drive performance and ensure accountability for delivering the then government’s agenda”. .

Willis said today that she continues to receive advice on how to provide pay for performance. She agreed that deputy chief executives could be included, but the initial policy focus was on chief executives.

Asked by Labor spokeswoman Dr Ayesha Verrall whether “ministerial satisfaction” would have an impact on the regime, Willis said any bonuses would be “directly linked” to the government’s objectives.

Willis was unable to say exactly how the level of progress on targets would translate into the bonus the CEO would receive, saying the framework had not yet been developed.

During the select committee hearing, she noted that public service directors often received half the pay of their private sector counterparts.

Willis also said she is still considering whether pay-for-performance could also apply to Crown agencies.

Verrall told reporters that Willis was “a little tone-deaf” in considering raising chief executive pay at a time when more than 2,000 public service workers have lost their jobs as part of the government’s push to cut public spending.

The government’s proposed targets included wait times for surgery, student achievement, lower crime and a large reduction in the number of social and emergency housing.

Verrall, a former health minister, has long warned against the potential for shortcuts to be used to achieve ambitious targets, as seen when hospital emergency department staff cut corners to meet a target maximum waiting time for patients in emergency departments.

However, it has left the door open for Labor to adopt a performance-friendly position on pay if the current government’s efforts prove effective.

“The last time we looked at this, we found no evidence that pay for performance improves performance.

“When we set our policy for the next election, we will be able to see whether there is actually any evidence of this with the current government.”

Adam Pearse is a political reporter at Herald of New Zealand Press Gallery team based in Parliament. He has been working at NZME since 2018, covering sports and health for Advocate of the North in Whangārei before moving to Herald in Auckland, covering Covid-19 and crime.