Brad Olsen: Infometrics Chief Economist on the introduction of performance-based pay for public sector agencies

Performance-based pay is on the horizon for Chief Executives of public sector agencies. 

Departments are moving to another phase of cost-savings after the Budget confirmed spending reductions. 

Finance and Public Service Minister Nicola Willis has confirmed pay boosts will be tied to progress but she's not expecting any bonuses to be paid out for at least a year. 

Infometrics Principal Economist Brad Olsen told Mike Hosking that this has the potential to incentivise change. 

He says it's reflective of the directive to give results that stack up. 

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Episode Transcript

Speaker 1 (00:00):
Changes come out of scrutiny week already, We've only had
one day of scrutiny week and look what happened. The
Finance Minister confirmed the government intends to have performance based
pay for public service CEOs A labor of course. Don't
like that at a time when a lot of people
are getting laid off. Info twix chief economist Brad Olsen
is with us on this. Brad, a very good morning
to you. Good morning, call me completely out of touch.
I would have assumed that CEOs anywhere had performance pay

(00:22):
as part of their package as standard. Is clearly not
the case, well.

Speaker 2 (00:26):
Certainly not for the public service in recent times. I
mean it got changed under this previous government. It's also
one of those things when you look at the numbers,
but we're not talking, of course, huge numbers of people.
If you look at government data, even back in twenty
sixteen when it was happening, only around one four hundred
odd people getting performance paid, three percent of the total workforce,
and the average value was only like two seven hundred dollars.

(00:49):
I mean, it's not big numbers that we're talking about here,
but it does seem to be something the government wants
to incentivize because they are trying to get some big
gains and some changes the government's trying to achieve, and
they want to tie performance or a bit more of
that pay for chief executive through to those results instead
of just saying no matter what happens, no matter if
you hit your targets or not, everything is just going

(01:10):
to be the same every year, no change.

Speaker 1 (01:13):
Do you reckon would?

Speaker 2 (01:15):
I think it's got the potential to. I mean, it's
not the sort of thing that is hugely usual across
the board. I mean, there were some international comparisons done
back in twenty thirty give you a bit of an idea.
New Zealand at that time had about thirty six percent
of people who were getting performance pay of some description.
You know, that compared to around sort of twenty nine

(01:37):
percent in Australia that you looked across some parts of
Southeast Asia, and that's sort of in the sixty seventy
percent change where you know a lot of people are
seeing that sort of incentive. So, I mean, it's one
of those things. Some of the international literature isn't particularly
strong on it, but I think it's again we're not
talking about sort of making I don't know, forty fifty
percent of their pay at risk, sort of more providing
that incentive for them to really press a bit harder.

(01:58):
Now already public service chiefectives, they don't go to work
to try and get better pay. So I don't think
there's possibly an argument, Mike that it might not incentivize
them hugely, but surely again it's a bit more maybe reflective,
not of fully incentivizing them, but saying that, look, you've
got to get deliver some results that stack up. Otherwise
there is a bit more variability and how much you

(02:19):
get paid.

Speaker 1 (02:20):
While I've got your Q one Thursday, what do you reckon?

Speaker 2 (02:24):
We're currently picking an increase and in fact I think
we're picking the biggest. Well, the thing here is that
I think you've got some of the weird seasonalities that's
going to sneak in. The likes of retail activity was
actually up in the quarter compared to the end of
last year, but part of that, I mean, there's all
sorts of weird Intrica season here. Remember we're also coming

(02:44):
off the back of having Cyclone Gabriel in the first
quarter last year, so that comparison is going to mix
it up, particularly for the primary sector. You've got the
likes of an extra day in February, which again just
adds a little bit more to all of the numbers.
But I think that again there's enough other parts of
the economy that are weak. Construction activities down what four percent,

(03:04):
the likes of concrete volumes of down eleven percent over
the last year, So I think you might see maybe
a little bit of a bubble up in this first quarter,
but it's not necessarily a good news story.

Speaker 1 (03:13):
All right, Well, I hope you're right. Brad Olson in
for Metrics Bullish as always.

Speaker 2 (03:18):
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