Auckland Council staff numbers and pay

Last week, Mayor Phil Goff wrote to Auckland Council Chief Executive Stephen Town about council staff numbers and salary information in the latest group Annual Report. 

Mayor Goff's letter and Stephen Town's response are below. 

5 October 2017 

Dear Stephen

I am sure you share my concern that when there are so many good things that Auckland Council is achieving, we get headlines like those in the Herald today which contribute to the low level of trust and confidence in council.

Not everything in the article will be accurate, but the figures used in the article are from our own report and are not adequately explained or justified by council. I indicated a couple of weeks ago that the level of increase in salaries over $200,000 and the large severance pay of $405,000 would raise questions about whether Council spending was adequately constrained. 

The severance pay issue needs to be dealt with in line with the suggestions offered by the Office of the Auditor General. We have discussed this and I am expecting from you a proposal setting out principles and processes that are best practice and transparent, in line with the guidelines set by the Audit Office. 

In respect to salaries, Council needs to demonstrate clearly and transparently that the process of determining and setting salary levels are appropriate, realistic and not excessive. We need to be able to clearly benchmark Council salaries against comparable public sector organisations. 

I accept that recruitment and retention of competent staff capable of delivering to high standards should underlie salary levels. However, I need to know that the percentage of our staff paid above $100,000 and above $200,000 is not excessive for an organisation of our size and budget. 

While it may be tempting to blame the media for adverse coverage, this is not an adequate response to how the public views council staffing numbers and salary levels. 

We need good staff and need to remunerate them fairly. However, we must be able to answer credibly the question of whether we are structured to provide best value for money and council salary levels are reasonable and not disproportionately high. People need to have confidence that we are responsible guardians of the money provided to us by Auckland residents and ratepayers. We need to change our culture to one based on value for money underlying everything we do. 

I look forward to receiving your proposals on how you can best achieve this outcome. Specifically, I need in the immediate future a full and clear analysis of why there was a very high percentage increase in salaries above $200,000 and a comparative analysis of salary levels of those above $100,000 with comparable public sector organisations. 

Yours sincerely,

Phil Goff
MAYOR OF AUCKLAND

10 October

To: Mayor Phil Goff

From: Stephen Town

Auckland Council Annual Report 2016/17 – Staff Costs

Purpose

To provide you with information about council staff costs and numbers as reported in the 2016/17 Annual Report and to outline a process for addressing your comments in relation to severance payments.

Summary

You have provided me with your concerns regarding staff salaries and severance settlements for the period covering the 2016/17 financial year. You have asked me to provide assurance that salary levels, and similar issues, are being managed appropriately given our financial responsibility to ratepayers.

The council’s 2016/17 Annual Report includes the council, its CCOs and Ports of Auckland (POAL). My response covers the council parent only, although I may refer to group figures where I am unable to separate group costs or policies.

The following information provides you with my initial response to your letter.

Context for the council’s staffing budget

At its simplest level, staff costs are a function of the number of staff employed and individual staff salaries plus benefits. Since amalgamation, the council’s staffing levels have increased. This has been driven by a range of factors which include: transferring external contractor roles in-house which reduce the overall cost to ratepayers; recruiting new staff in functions where the costs are recovered through user fees (eg regulatory or commercial activities); and supporting the unprecedented growth of the Auckland region (eg consenting and civil engineering).

Over the past four years, the council parent has recorded a one percent increase in FTEs. Council staffing levels plateaued in 2015/16, when the annual change was an increase of 14 FTEs and the council spent $5 million less on staff costs than the previous year. The current annual report records a decrease of 11 FTEs and I believe the flat-lining trend for the council parent will continue as ELT maintains its focus on efficiency saving opportunities.

Staffing levels should also be assessed against Auckland’s population expansion. New growth drives future planning and civil engineering requirements. It also creates immediate demand for everyday council services such as libraries, rubbish collections, community facilities and customer services. Auckland’s population has increased by 174,800 since amalgamation, which is the equivalent population size of Hamilton, New Zealand’s fourth largest city.

That said, while Auckland’s population has increased by 12 percent since amalgamation, the council group’s FTE numbers (excluding POAL) have risen by less than half a percent compared to the staffing levels of the former councils. This is a demonstrable productivity gain for the region.

We have also assessed the council group’s (excluding POAL) staff budget against the former eight councils. When wage inflation is taken into account, the staff budget of the council group is equivalent to the former councils.

Finally, council group staff costs as a percentage of operating expenses have remained between 22 percent and 23 percent since amalgamation. This is equal to, or below, other comparable local authorities.

The process for determining and setting Auckland Council salary levels

While the council inherited a number of staff from the former councils where contracts were negotiated by the Auckland Transition Agency, subsequent remuneration for new staff have followed the council’s documented remuneration policy.

The council parent roles are banded using best practice job sizing methodology. The salary ranges are regularly reviewed against market data from both private and public sector organisations. Council’s salaries do not include variable pay components such as bonuses or incentives which are common in most private sector organisations and some public sector entities.

Council uses the proprietary job evaluation system of Strategic Pay to determine the relative size of roles. Strategic Pay is an expert external pay consultancy service. This covers the majority of roles at Auckland Council including all senior leadership roles and the Chief Executive. This enables both internal and external comparison of roles and access to remuneration data. All roles are evaluated by expert job evaluators and the majority of senior leadership roles are assessed by Strategic Pay directly to ensure objectivity and appropriate external comparators.

The remuneration information used for the salary ranges and individual pricing of senior leadership roles is positioned at the general market median for fixed remuneration, which includes base salary and benefits and is exclusive of any incentives and bonuses. The general market remuneration information used includes the majority of councils and a good representation of public sector organisations. A range of sources of remuneration information is used to validate the appropriateness at which these levels of pay are set.

Finally, the council is a follower of market salaries. Specifically, the council lags approximately 12 months behind the general market. The council does not lead the market, and does not aspire to set market rates. Comparative figures are at Attachment A.

Details of staff earning over $100,000 and $200,000[1]

You have sought information on the number of staff earning over $100,000 per year. There are currently 1,092 staff who earn over $100,000 within the council parent.

The number of staff earning over $100,000 represents 15 percent of all council parent staff, This is an increase of one percent compared to the same reporting period last year.

Table 1: Auckland Council Parent Employee Total Remuneration

You have also sought information on the number of staff earning over $200,000 per year. There are currently 74 staff who earn over $200,000 in the council parent, which is a net increase of 19 compared to last year. As previously advised, the increase comprised of movements in the following groups[2]:

• one staff member received the council’s annual salary increase of 1.4 percent, which took them over the $200,000 threshold
• one received an out of cycle increase, which took them over the threshold
• four were promoted into larger roles in their existing departments
• one joined council from ATEED on their existing salary
• four were new into the People and Capability leadership team
• an increase from one to two in the Mayor's Office
• two roles in Infrastructure & Environmental Services
• one each in the Transformation, IMSB, CPO, Corporate Finance and Property, Legal & Risk, ICT, and Te Waka Angamua teams.

The number of staff earning over $200,000 represents one percent of all council staff, compared to 0.8 percent the previous financial year. This compares favourably to other similar public sector entities and is substantially lower than other large private sector companies.

Table Two: Staff Salaries over $100k[3] 

In terms of annual pay increases for senior staff, the council’s pay increase for the 2016/17 period was 1.4 percent. This compares, for example, to 3.45 percent for central government senior managers (Tiers 2 to 3).

Severance Payments

You have asked the Risk and Assurance Committee Chair to invite the Auditor-General to review the council’s 2016/17 severance payments. The Auditor-General has responded that Audit NZ has examined the council’s severance payments as part of its annual audit process. Audit NZ did not identify any irregularities with the 2016/17 payments, but has advised council to strengthen its internal advice to managers. This is a sensible and welcome recommendation.

In response, I have asked Patricia Reade’s team, working in close consultation with the Risk and Legal teams and your office, to develop a council policy based on the OAG’s best practice advice. We will also take counsel from leading severance settlement experts. I intend to complete the drafting of the policy by mid November 2017 so that it is in place as soon as practicable. It is also my intention to refer the policy advice to the Risk and Assurance Committee for comment prior to adoption.

Attachment A: Market Competiveness versus Council Parent Actual Pay

[1] Figures compiled for the Annual Report can include staff salaries inclusive and exclusive of employee KiwiSaver contributions depending on the individual employment contract.

[2] The list does not include departures or decreases in departments.

[3] The information contained in Table 1 has been obtained from publicly available documents in 2016 and 2017 and the representative entities have not been contacted to verify the accurateness of their respective staffing information.

[4] Christchurch and Wellington City Council figures do not include regional council functions (staff).