On CEO public sector pay, and North Korea’s nuclear threat

This morning’s NZ Herald story about the massive pay hikes for chief executives in the public service knocks a hole in the rationale for the government’s programme of public sector cutbacks. Only a couple of weeks ago, Finance Minister Bill English was preaching the need for austerity, in these classic we-must-tighten-our-belts terms:

…We need state sector agencies to become truly focused on, and organised around, meeting the priority needs of families and businesses, and doing so within tight budgets.

“One part of delivering better public services is ensuring money is not unnecessarily spent on back office administration, when redirecting it to front line services would yield better results.

Such calls for austerity go flying out the window however, when it comes to padding out the pay packets of public service CEOs.

The largest of these CEO pay rises occurred in the four state energy companies being readied for privatisation:

The bosses of our four large state-owned energy companies are the highest paid chief executives of about 300 organisations analysed across the public sector – and also received some of the biggest pay hikes… In 2011, the four heads were more than a combined $1.1 million better off than the year before… The highest paid of the heads was Mighty River Power’s Doug Heffernan, at $1,769,342… Remuneration for the bosses of Solid Energy, Meridian Energy and Genesis Power also topped the million dollar mark, at $1,410,00, $1,220,620 and $1,180,000 respectively.

How can this regime of self indulgence be justified, when everyone else is being handed a gospel of austerity? With these extraordinary sums, power users are merely getting a foretaste of the costs they will face once the government’s mixed ownership model is imposed on these state-owned energy companies. Because the CEO pay hikes exposed by the Herald are merely the first instalment of the costs of privatisation, which will accelerate once this virtual cartel starts to respond to their new shareholder expectations of dividends from what it is, to all intents, a captive market.

Any illusion that significant gains can be made by shopping around for tiny price savings will be dispelled by contemplating how the CEO pay in these companies has marched upwards in lockstep at a rate of increase that ordinary workers can only dream about – at rates of 42% (Meridian, a pay rise for its CEO of $362, 933), 34% (Mighty River, a CEO pay rise of $451,873), 22% ( Genesis) and 11% (Solid Energy) respectively.

The argument that these remuneration packages are a reward for performance doesn’t stack up, either. That’s because business performance is a collective achievement by all the staff of the organization, and not something that can fairly be attributed to a winner-take-all CEO. Secondly, how hard can it be to sell electricity to a captive market of people who need it to survive? Thirdly, the alleged incentive payments for CEOs in the public service would be more credible if they were withheld when performance is substandard. Yet typically, when the market turns down, the performance incentives still tend to be paid out as a reward for providing stewardship during difficult times. For public sector CEOs it tends to be a pay packet bonanza, whatever happens – while for the rest of the “team” the message is one of minimal pay increases, career insecurity and job losses – amid deteriorating service provision for the public at large.


North Korea, and Obama

When it comes to rank hypocrisy however, nothing can beat the language of nuclear disarmament – which is dominated by the nuclear club issuing warnings about the grave dangers of … anyone else getting their hands on the same weapons they intend to reserve strictly for themselves. This week, Prime Minister John Key is in South Korea for the Nuclear Security Summit, a meeting of 54 foreign leaders that is expected to focus on international cooperation to prevent the spread of nuclear weapons and nuclear terrorism.

This gabfest won’t stop New Zealand and the rest of the West from continuing to oppose the creation of a nuclear free zone in the Middle East, mainly because Israel is the only nuclear armed power in that region, and Washington intends keeping the current imbalance in place – even if it eventually means taking or condoning military action against Iran, in order to stop it from achieving parity with Israel. Despite the fact that even the worst case scenario – ie, an Iran/Israel nuclear standoff in about ten year’s time – would still only entail the same nuclear parity as currently exists between India and Pakistan, which the West has learned to live with for over a decade.

So the nuclear disarmament charade continues. In South Korea this week, US President Barack Obama warned North Korea that it will achieve “nothing” from making threats to the region with long range missile tests and nuclear weapons development.

Funny, because only last month, North Korea could point to what its track record of issuing threats and developing nuclear weapons had already achieved:

Last month, Pyongyang agreed to suspend long-range missile tests.

The agreement was part of a deal for the United States to supply 240,000 tonnes of food aid to North Korea.

True, that food aid deal is now at risk – but it is disingenuous of Obama to say that threats and weaponry will win Pyongyang no rewards or special consideration. If anything, North Korea’s success in that respect has been an inspiration for the mullahs in Iran.


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