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 local government officials.

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

  • 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.

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 ratepayer
  • the requirements of the job
  • the need to recruit and retain competent individuals
  • 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.

Criteria used by the Authority in setting remuneration for MPs

The Authority sets the remuneration of MPs on the basis of the criteria in the Remuneration Authority Act, ss. 18, 18A:

  • fair relativity with comparable positions
  • the need to be fair both to the individuals whose pay is being set, and to taxpayers
  • the requirements of the job
  • the need to recruit and retain competent individuals
  • 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 Authority sets MPs salaries on a total package approach. It takes into account benefits such as superannuation, and any personal benefit element in work related expenses such as travel.

While the Authority bases remuneration for MPs on job sizing, the remuneration for members with additional responsibilities, such as the Prime Minister, Ministers, Leader of the Opposition, is not linked to job sizing. Margins recognising the additional responsibilities in these positions have developed over time. The remuneration for these positions of additional responsibility does not match either public or private sector remuneration for similarly responsible positions. MPs’ salaries are paid under Permanent Legislative Authority.

For more background see the Explanatory Note to the current determination, Parliamentary Salaries and Allowances Determination 2013 (2013/462).

Annual reviews

The Authority reviews the remuneration of all positions every year.

In these reviews, the Authority considers information from a range of sources. 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.

  • 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.