Should public service ceos be able to be sacked at will?

March 10th, 2013 at 10:00 am by David Farrar

writes:

Perhaps we should thank former Ministry of Education head Lesley Longstone for only stinging taxpayers $425,000 as a severance package.

Yes it is a lot of money, especially to onlookers on the minimum wage, the average wage or even anyone outside the top echelons of pay packets.

Given the circumstances of her departure – just over a year into a five-year term and as a result of a clash of personalities with her minister – she could have asked for more. …

So given that, and the public revulsion at such pay-outs, it is time to look again at how those contracts are written.

Setting aside for now the fact it would have been cheaper all round (and arguably fairer) to have shifted Parata, rather than Longstone, it’s time to dispense with the fiction that chief executives are not on grace and favour contracts – essentially at the behest of their minister.

The Longstone example makes it as clear as day that a CEO cannot stay on if they fall out badly with their minister. But the fiction forces the SSC to dance on the head of a pin over the reason why they go, and the payouts that follow are eye-watering to most people.

It is true that if a Minister loses confidence in a CEO, then one of them has to go. And in a democracy it is the civil servant, not the Minister.

There are strong arguments that can be advanced about the quality of chief executives that might be recruited, and state sector purists will choke into their lattes at any move away from the notional independent public servant.

But there are precedents. Press secretaries and political advisers in politicians’ offices are on the public payroll but are on so-called “events-based contracts”. The “events” are essentially the continuation of the MP or minister in that office but they also include a clear parting of the ways between a minister and a press secretary. Payouts are modest. …

Acknowledging – and embracing – the reality that senior public servants are to all intents and purposes there at the will of their minister is an argument that has some resonance among some MPs too, but from a different perspective.

As they see it, politicians are elected and they should expect their decisions to be implemented. Something akin to an “events-based” chief executive could eliminate deliberate attempts to frustrate the will of their minister or the Cabinet.

I can see the attraction of an events based contract for CEOs, but there is a reason I think they would do more harm than good.

They would make it too easy for a Minister to dispense with a CEO. You only want the CEO to go if absolutely necessary. And as part of that, you actually want the departure of a CEO to cause political pain for a Government – which a payout causes.

If you had a clause that just allows a CEO to be sacked with three months notice, then I think you’d see a far higher turnover of CEOs – and I don’t think that is necessarily a good thing.

I don’t like paying $425,000 out for premature termination of a contract. But education is a $10 billion budget. If we have to pay out 0.05% of the budget to get a Ministerial-CEO relationship that works, then it is worth it. Of course some will argue the wrong person went – but Ministers are accountable through elections, and National will be judged in 2014 on how it has done overall.

So what is the happy compromise that would cut back on payouts by establishing events-based contracts; acknowledge the “political” nature of some public service roles – and the need to have someone driving hard to implement government policy; but maintain a flow of contestable advice?

One option would be to insist on a competence-based (not purely political) selection process where the nominee is examined by a select committee, much as the United States does with its Senate confirmation hearings.

That would allow the government to win the day, but in the process unearth incompetence and expose any skeletons to the public eye.

I’m not sure select committee hearings would un-earth any incompetence.

If we were to have select committee hearings for government CEOs then we should go the whole hog of the US model where the Government of the day appoints the entire senior management of the government departments. Of course that has some drawbacks also!

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10 Responses to “Should public service ceos be able to be sacked at will?”

  1. iMP (2,455 comments) says:

    No, there has to be process that political masters are tempered by.

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  2. backster (2,195 comments) says:

    The term of the contract of a CEO should be limited to the term of the Government, that way the Government has a better way of implementing their policies instead of being at odds with an opposing philosophy held by the CEO (ie Joris DeBres).
    If an inquiry is to be held it would be better to be into why no suitable CEO could be found within the thousands of employees employed by the Education Department rather than head hunted from overseas.
    While the settlement is outrageous, Labour people will be less molified when they reflect that under their Government John Hawkesby was paid six and a half million for less effort over a shorter period, and has since become a connoisseur of the great wines of the world..

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  3. UrbanNeocolonialist (310 comments) says:

    The problem here is not the sacking, and to think of it as being “only 0.05%” is also appalling. It is almost 10 years salary for someone on an average wage!

    The problem is the incestuous nature of civil servant pay decisions. Where the people making the offers and writing the contracts see themselves as potential beneficiaries of overall skyrocketing pay and benefits levels (just as within the executive suite of many companies), and have no accountability for the money they spend. It develops a pervasive sense of entitlement and unrealistic expectations and valuation of self worth throughout the civil service.

    So for them to write in ridiculously expensive salary offers and massive golden parachutes is galling as civil servants enjoy far more job security than most, and all of this pretence about parity with private sector is just so much bullshit – if it is for real then lets see them try to get jobs in the private sector at even half the pay they are on. For senior bureaucrats there is in reality little chance of them seeking work elsewhere – away from their home turf, so why do we need to pay so much?

    So how about as a first step mandate that any and all civil servant severance packages are limited to something like 6 months worth of an average wage – say $25k That is more than enough for almost all New Zealanders, and there are welfare systems to cope beyond that. For top-end execs earning $200k+ per year if they cannot save enough to tide them over through slightly longer periods of unemployment then how the fuck could they be deserving of the big pay in the first place?

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  4. Judith (8,534 comments) says:

    Regardless of what a person is earning, the same rules need to apply – either you are doing your job efficiently, to the terms of your contract, or you aren’t. If you aren’t – you’re gone.

    The problem is the contract and what is included in it.

    My question is, given recent examples, should there not be a lot more care taken with contracts, especially regarding lack of performance?

    It appears to me, and I could be wrong (it has happened once or twice before) that these contracts are being drawn up basically giving the successful applicant whatever they want. There clearly aren’t sufficient clauses to protect in cases of incompetence (other than to protect the CEO’s interests). Naturally if the contact allows these people to perform badly, or at least, does not provide adequate definition of ‘bad performance’, then the CEO (or any other such employee) are going to look after their own interests, and ensure they collect every cent the contract allows, for as long as it allows it.

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  5. dime (10,212 comments) says:

    .05 seems high…

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  6. burt (7,424 comments) says:

    I think the unions should be spending vast sums of money extracted from minimum wage workers fighting for these people to be employed on collective contracts that retain their job security. How good they are, their value to the organisation or their ability to even do their job at all is irrelevant – it’s about solidarity !!!!!!

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  7. ChardonnayGuy (1,231 comments) says:

    This is an interesting question. What safeguards exist against corrupt and incompetent chief executives within the private sector, and if satisfactory, should they applied to the public sector as well? I look forward to future blogs on this subject, David (hint hint!):)

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  8. WineOh (636 comments) says:

    CEO’s serve at the pleasure and whims of their board in the private sector, so should be little different to the public sector. However to attract decent talent, the terms of the employment agreement must be agreeable to both parties. And if that agreement includes a clause around termination that involves a payout, then must obviously be adhered to. If she were to be sacked for gross incompetence, one would expect no such payment would apply.

    I would feel more than a touch aggrieved if I uprooted my life & traveled halfway around the world from the UK only to be kicked out over a personality conflict. It makes her nigh-on unemployable for in NZ. Only thing that could have been worse would be a employment case hitting the courts.

    Anybody else feel that Parata is operating on borrowed time though, and awaits only the perfect timing to be tossed over when it is politically expedient to do so?

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  9. peterwn (3,333 comments) says:

    What Vernon Small forgets is with most senior executive contracts the employee negotiates from some position of strength especially when a job offer is on the table. This is in contrast to most other employment contracts where the employer offers a contract on a ‘take it’ or ‘leave it’ basis. It is all very well offering an ‘event’ based contract to a CEO candidate if the candidate either refuses to accept it or demands a large ‘golden parachute’ in return, or does not even bother to reply.

    The five year contract rule in place for departmental and council CEO’s seems to be a reasonable compromise recognising the need to be able to get rid of a non-performing (for whatever reason) CEO and providing some protection for the CEO – in the Education Ministry, possibly both sides were at some ‘fault’ for not being able to recognise the appointee was not ‘suitable’ and vice versa.

    “It is true that if a Minister loses confidence in a CEO, then one of them has to go. And in a democracy it is the civil servant, not the Minister.” This applies equally in any other governing body (eg board of directors) v CEO situation. A Board has to do what is in the shareholders’ interests and ‘carrying’ a dud is not. The one exception seems to be schools where if the Board and principal loses confidence in each other, it seems the Board walks. The Employment Relations Authority has pretty well confirmed this by reinstating the Principal of Christchurch Girls’ High School.

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  10. Parlyguy (19 comments) says:

    “I’m not sure select committee hearings would un-earth any incompetence.”

    I disagree. I think you would be surprised by the amount of incompetence unearthed by select committee hearings, especially amongst the select committee members.

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