Criteria for setting remuneration

The Remuneration Authority Act requires the Authority to consider certain criteria when setting remuneration. It has additional criteria for MPs and elected local government members.

Criteria for setting remuneration

The Remuneration Authority Act 1977, ss.18, 18A requires the Authority to consider the following criteria when setting remuneration:

  • fair relativity with comparable positions;
  • the need to be fair to the individuals whose pay is being set, and to the taxpayer or ratepayer;
  • the requirements of the job;
  • the need to recruit and retain competent individuals; and
  • any prevailing adverse economic conditions (which may lead the Authority to set remuneration at a rate lower than might otherwise have been the case).

It does this by undertaking annual reviews linked to job evaluation.

Following the passage of the Remuneration Authority (Members of Parliament Remuneration) Amendment Act 2015 these criteria do not apply to MPs. 

Criteria used by the Authority in setting remuneration for MPs

Under the Remuneration Authority (Members of Parliament Remuneration) Amendment Act 2015 the only criteria which the Authority is required to consider in setting MPs’ remuneration are:

  • the Quarterly Employment Survey (QES) for the public sector average ordinary time weekly earnings for full-time equivalent employees, using the change for the average for the previous year to June, and

any changes in personal benefit or potential personal benefit arising through changes to entitlements under the Members of Parliament (Remuneration and Services) Act 2013. The Authority is required to take into account any prevailing adverse economic conditions when determining MPs’ allowance (but not salaries).

Criteria used by the Authority in setting remuneration for elected local authority members

The Authority sets the remuneration of elected local authority members on the basis of the criteria in the Remuneration Authority Act 1977, ss. 18, 18A:

  • fair relativity with      comparable positions;
  • the need to be fair both to      the individuals whose pay is being set, and to ratepayers;
  • the requirements of the job;
  • the need to recruit and retain competent individuals; and
  • any prevailing adverse economic      conditions (which may lead the Authority to set remuneration at a rate      lower than might otherwise have been the case).

The Local Government Act 2002, clause 7 of Schedule 7 sets a further requirement on the Authority in setting pay for elected local authority members – the requirement to minimise the potential for certain types of remuneration to distort behaviour.

Annual reviews

The Authority reviews the remuneration of all positions every year with the exception of MPs whose pay is indexed to changes in public sector average earnings.  The Authority considers information from a range of sources in undertaking these reviews. This includes:

  • data collected by the State Services Commission through its annual survey of chief executive remuneration in the public service and wider state sector, and its monitoring of remuneration movements in the private sector;
  • trends and developments in remuneration in sectors relevant to those where the Authority sets remuneration. For example, movement in remuneration in the legal profession;
  • major changes, including legislative changes, in the role(s) concerned; and
  • the views of the individuals or groups concerned.

Performance

The Authority has no mandate to take account of performance in setting remuneration. The expectation is that the individuals appointed to the very senior roles where the Authority sets pay will perform at a high level.