Splashing the cash at the Reserve Bank?

When the Reserve Bank’s Annual Report turns up in my in-box, the table on remuneration isn’t the first place I turn.  In fact, executive pay more generally isn’t one of those issues I can get terribly excited about.  I thought Jim Rose’s column in the Herald the other day made some good points, although (a) I’m not sure that whether the share price goes up or down when the CEO leaves is really a good indicator of whether the individual was appropriately remunerated or not, (b) none of the defences he deploys really apply with any great force to senior public sector positions.  And there is no market discipline on top public sector salaries, so critical scrutiny  and open questioning actually matters.

But someone emailed me suggesting that the Reserve Bank Annual Report implied that the (now former) Governor, Graeme Wheeler had had a big pay rise.  And that did interest me, because outside the halls of the Reserve Bank Board it isn’t clear who would have thought that Wheeler had done something even approaching a stellar job as Governor.

Wheeler started at the Bank in September 2012, so we can’t get a read on his initial salary in the (June year) 2012/13 accounts.   But there are four years of annual reports when he will clearly have been the top earner in the Bank.    The relevant tables show the top earner received as follows during these financial years:

2013/14 620000 to 629999
2014/15 640000 to 649999
2015/16 660000 to 669999
2016/17 850000 to 859999

That is some jump.  But there is a footnote on this year’s numbers, stating that “the highest remuneration band includes a payment of $101000 for accrued annual leave, which was paid out in cash rather than taking leave”.  (That must be about two months of unused leave, for someone in the job  – at a time of no crises – less than five years, which itself doesn’t suggest particularly good management.)

But even if we subtract the $101000, we are left with figures suggesting that Graeme Wheeler got a payrise of around $90000 between 2015/2016 and 2016/17.  In fact, it was quite possibly more than that, because he personally may well have been reviewed on the anniversary of his appointment, in September (and if so the 2016/17 numbers may include only around three-quarters of his big annual increase).

So how do his cumulative pay increases compare against either CPI inflation or general wage inflation (I use the analytical unadjusted series, which is materially higher than the QES recently)?  There has, of course, been no productivity growth in New Zealand over the term Wheeler was in office.

wheeler salaries

It is a pretty astonishing boost.  Perhaps not a great problem for somone doing a stellar job but this was someone who:

  • had consistently seen inflation undershoot the target midpoint, that he’d specifically agreed to focus on, for five years,
  • who never, ever, admitted a mistake (surely not his advice to his own young managers?)
  • had repeated communications problems with financial markets,
  • whose speeches rarely offered much in-depth insight, and whose defences of successive waves of new regulatory interventions never seemed robustly grounded.
  • whose embattled relationship with the media was epitomised in his refusal to ever expose himself to a serious  and searching one-on-one interview (or indeed any interviews with outlets not already supportive of the Governor).

Oh, and then late in the 2015/16 year, there was the OCR leak debacle which among other serious failings, involved the Governor publicly tarring as irresponsible the person (yes that was me) who drew to the Bank’s attention evidence of the apparent leak.

This year, of course, (but no doubt well after Wheeler got his last pay rise) there was the still-more-shameful episode, in which Wheeler sought personally (and used his senior managers to reinforce his efforts) to silence a pesky critic, who happened to work for an organisation the Reserve Bank regulates.  And on that note his tenure ended badly, and largely unlamented.

So what were they thinking when they gave such a big pay rise to someone with such a mediocre (at best) track record, who was hardly like to walk out on them if he didn’t get the increase?  And who was “they”?

Well, on this occasion, it wasn’t the Bank’s Board.  The Reserve Bank Act is quite clear that

The conditions of employment of the Governor, including remuneration, shall be determined by agreement between the Minister and the Governor after consultation with the Board

In practice, the Board may well have put a recommendation to the Minister.   But however this idea first got traction –  whether Wheeler pushed for a pay rise, or the Board really did initiate it –  the Minister approved it. That was last year’s Minister of Finance, Bill English.   This was the same minister who went on record pushing back against a big pay rise for another public sector chief executive, Adrian Orr –  but couldn’t actually stop the New Zealand Superannuation Fund’s board putting through the pay rise.    Sceptical as I am of the NZSF, and of its long-term performance, Orr’s case for a big pay rise looks to have been considerably stronger than Wheeler’s.

I can’t imagine why the Minister of Finance approved such an increase, especially against the backdrop of his own evident discontent with the Bank.   I guess he isn’t too busy governing this week, so perhaps some journalist could ask him?

(But it was fortunate for Grant Spencer that Bill English did approve that pay increase.  When the (unlawful) “acting Governor” appointment was announced we were told that Spencer would be paid to mind the store on the same terms and conditions as Wheeler had been receiving.)

PS.  Someone who attended a post-election lunchtime seminar at Victoria University today informs me that Colin James (usually well-connected) stated there that he understood that The Treasury is undertaking a “root and branch” review of the Reserve Bank Act.  If so, that would be most welcome.


14 thoughts on “Splashing the cash at the Reserve Bank?

  1. funny, I didn’t think it was legal to pay out for untaken accrued leave. In the past we’ve had to have employees resign then be re-hired in order to pay it out as part of final pay. I wonder what the Dept of Labour would have to say about that.


    • What about Theo Speirings $8.3 million salary increase by the Board of Fonterra. It is disgusting that a CEO would accept an increment and a Board would give it when the company’s profits decline by 11%. That’s just so wrong. Personally I was due a 5% bonus on my bosses profit for the entities I was responsible for, which amounted to $100k, but in all fair conscious I could not accept it when I knew overall my boss was not doing well.


  2. I thought the RBNZ had a 1% nominal pay cap on its budget until the end of Wheeler’s tenure, or some such amount, in a similar vein to many other public sector departments? If so, what had to go in order to pay for his pay rise?


    • a) they can’t use operating profits for pay rises. Operating expenses are capped by a five-yearly agreement with the Minister

      (b) the RB is structured to earn large profits every year no matter what senior management does. All those banknotes are loan from us to the RB at zero interest, and they invest the proceeds in govt bonds etc. In the last decade, they have adopted a materially riskier balance sheet, and profits are now quite variable depending on the exchange rate (RB loses when the exch rate goes up, and gains when it falls, with the realised gains and losses largely passed directly thru to the Crown.


  3. Hello Michael

    As I recall, there was a time when the remuneration rate of the Governor was fixed for the term of his appointment, perhaps as a personal incentive to keep inflation down.

    If that is still the case, then did Wheeler reach the end of one term, and then begin another, before stepping down today?

    That would explain why a substantial pay increase may have been awarded for his final year.

    Best regards


    Michael Dunn


    New Zealand

    +64 21 396 700


    • I don’t think the Governor’s pay was ever fixed for his whole term. There were early discussions about possibly linking the Gov’s pay directly to success on the inflation front, but the idea was discarded pretty quickly (it was difficult to distinguish target breaches you wanted to allow – eg oil price spikes – frrom those you didn’t, and there was also something icky about the idea of the Governor getting a pay rise if, say, he made more people unemployed – to achieve an inflation target in response to particular types of shocks).

      On your specific question, no, Wheeler didn’t end a term earlier. He was appointed in 2012 for a single five year term that ended this week.


  4. I rather suspect remuneration targets the position not the individual and the increase will have been on the back of advice that attracting the necessary talent requires more competitive remuneration.


    • There may be an element of that factor in the explanation. If so, it doesn’t seem a terribly compelling explanation. The Minister could easily have reset the appropriate level of remuneration for the Governor when a new Governor was appointed. As it is, Wheeler’s pay increase won’t have served as a useful signal to potential applicants, as the data emerged last week and applications closed three months ago.

      (To be clear, I don’t regard the absolute number for the Governor’s salary as inappropriately high – if anything, the prevous numbers seemed a bit low – just that Wheeler himself was an unworthy candidate for a material increase very late in his term.)


      • I suspect that Wheeler’s final pay would set the benchmark for the new appointment. The higher remuneration authority benchmarks against private company remuneration and these do not tend to go backwards. I suspect the next appointment will be at least 1 million dollars if not more.


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