Rising executive salary levels cannot be justified

December 20, 2011

Along with most Christchurch people, if this morning’s letters to the editor are any indication, I am appalled by their city council’s decision to give its CEO Tony Marryatt a 15% pay rise to well over $500,000.

I won’t argue the merits of his salary in his particular setting, apart from agreeing with sentiments in the scores of letters which filled the opinion pages of The Press. So many people in that quake-broken city are hanging on by a thread, financially and emotionally, and the rest of the country is being reminded ad nauseum of the need for restraint in wage expectations and government spending.

This decision is an insult to all except the upper clique of officials and corporate bosses who increasingly are losing contact with the rest of the population.

Executive salaries have bothered me for years. I’ve tried to keep an open mind, aware of the arguments of supporters generally along the lines of (a) you have to pay what the market demands, and (b) you suffer from wealth envy. But it just doesn’t wash.

1. The “market demand” argument is run by the people who benefit most from it. The “market” for senior executives is small and created by the senior execs themselves. They maintain it by bidding each other up. Each new position is filled by someone who is already in the clique but who demands or expects more money. The whole thing must be unsustainable – you just cannot keep bidding up the rewards at a rate faster than the underlying rate of economic growth without the system ultimately falling apart through its own illogicality or a rebellion by “the masses”.

2. That so-called market is rarely tested. With most workers, excessive wage demands lose you the job. The labour market works pretty efficiently, be it fairly or because of ruthless control from the bosses. But when hiring a new senior executive no-one seems to have the guts to say, we can get someone else if you demand too high a salary. There really is no effective market for the top dogs, so they cannot justify it through “market forces”.

3. One would like to believe that quality senior executives would see job satisfaction, their leadership status and the knowledge that they are useful as part of the reason they take on such positions, not just the pay. Many people do outstanding work of great benefit to society without the motivation of being paid an obscene fortune to do it.

4. In Christchurch in particular, the recovery process is clearly reliant on many people in leadership positions going the extra mile without expecting big money in return. That’s how the city will rebuild. It’s insulting and depressing to the ordinary people who are making this extra effort that their leaders are seen to be doing it mainly for the money.

5. In Marryatt’s case, it has long been known that he desperately wanted the job anyway. He and his supporters reportedly fought tooth and nail to retain his position. It’s not as if the council needed to give him a big pay rise to keep him.

 

3 Comments | Business, Social issues | Tagged: , , , , | Permalink
Posted by David Armstrong

The reality of state asset sales – what’s the purpose and who will buy?

November 21, 2011

I may be wrong but …. there seem to be some vital pieces of logic missing in the debate over selling shares in some of New Zealand’s public assets to private investors.

Hopefully someone with greater understanding of finance and stock markets, and who knows how to count in billions, will be able to help me out.

There are two parts to the election debate about whether or not to sell 49% of five NZ state-owned enterprises – the economics of it, and the ideology underlying private sector versus state sector ownership of large infrastructure businesses.

The incumbent National party is going to the electorate with the policy of selling 49% of the enterprises (Air New Zealand, a coal miner and three electricity generators) into private hands.

Initially the rationale was to raise $7 billion (or $8b, one minister said) and to use it to retire that much debt. That seemed pretty clear-cut. As the election campaign got underway, and noting the trouble in overseas debt and equity markets, the number got revised to several alternatives depending on which National minister was talking, with the most common figure now $5b – $7b. A good enough estimate – what’s a mere $2 billion between friends? (Or does this mean National is really just guessing? Well, of course they are to a degree – how can anyone calculate how much you can sell anything for on an open market?)

Then the fudging began. In order to make the policy look more attractive, National framed it as selling some assets so as to fund other new assets (presumably ones that would otherwise not be built). These new assets – about $1b worth I believe – will include better facilities for schools and better roads. So, that’s $1b less for retiring debt, so we will need to borrow more to cover that gap.

Then National decided to make the sales proceeds into a fund for election sweeteners. First off the block was nearly half a billion for irrigation schemes, which will benefit farmers and then hopefully trickle down to the rest of us. So that bit of public asset sales revenue will go to the benefit of a few. Other recipients from the same fund are promised elsewhere.

In summary, a significant proportion of the funds raised by selling 49% of five state assets will now NOT go to retiring debt, so the National party needs to borrow more or cut a few billion off public services to achieve its target of getting back to surplus within its timeframe.

If I’m wrong in my logic and calculations, please someone tell me.

The other thing I may be wrong about, but would welcome correction, is the question of who will buy the shares. We’re talking about $5 – $7 billion that needs to be raised or, apparently, it’s not worth the sales going ahead. And National is sure that the large majority of the money will come from Kiwis. My questions are:

1. Is there $5b – $7b floating around in New Zealand, outside of the share market, looking for companies to invest in? If so, where is it?

2. If a hunk of that money is to be supplied from part of what Kiwi shareholders already hold in the New Zealand share market, what is the point of moving it from the existing NZ companies to these new ex-state assets? How will that help boost investment in local business and development? Or if locals will need to borrow to buy shares, that puts our (private) borrowing in an even worse state when we’re being encouraged to save more and reduce debt.

3. I assume that such large sums of money could come from Kiwisaver providers, the Super fund, iwi and other large NZ investment funds. But that would mean that most individual “mum & dad investors”, who National is boasting will love to buy shares, will in fact only own shares indirectly, as part of funds they have no control over.

4. Getting back to fundamentals, how many New Zealanders will be able to afford shares in these assets on the open market? There can be no financial concessions to Kiwis because that would reduce the amount raised, so the government will be aiming to get top dollar from everyone. Only the wealthy investors of this country, with money to spare, will be able to afford any significant holdings in the sold assets.

5. As with the similarly contentious issue of the sale of NZ farms, the top money is overseas. In any open market where the seller is after as much money as possible, the buyers will be the ones with the most money. And it won’t stop at the initial public offering; in time the initial buyers will want to sell, especially if the price is right, so eventually non-Kiwis will own pretty much all of the 49%.

 

2 Comments | Business, Economics, Politics | Tagged: , , , , | Permalink
Posted by David Armstrong

Teapot affair an insight into John Key’s character

November 18, 2011

What to make of the teapot affair?

As a person with a long-held interest in politics and the political process, I’ve watched the progress of many New Zealand general elections. I have to say that this one has become the most remarkable one of the lot so far.

With the National party as seemingly certain winners just a week ago, the events around the unauthorised recording of what is now dubbed the “teapot tape” conversation between John Key and John Banks, now familiar to every Kiwi with a radio or TV, have unexpectedly changed the whole contest in the most bizarre way.

It seems likely to change the way the votes play out, though not enough for National to lose, but it will have a longer-term impact on the way Kiwis view political manipulation and the use of hierarchical authority.

The event that led to the teapot tape recording was itself only a relatively minor, lightweight one. Key and Banks could have covered those topics in true privacy, without the invited media nearby and somewhere other than a cafe open to the public, and we’d have never known. They almost certainly do have such inter-party strategic political conversations from time to time.

But it’s the reaction of Key to the news that the conversation was heard that is truly remarkable, even unprecedented. And because of that reaction the incident has developed a life of its own, fuelled entirely by the PM and his advisors.

And furthermore, I’m starting to believe that the PM has decided to use it to encourage the diversion of media and voter attention from the real issues and hence starve the opposition parties of air, for short term gain and without too much thought to the longer term effects for the country and Key himself.

There appear to be four types of reactions by voters:

1. Those who couldn’t care less one way or the other about Key, but are annoyed at the media’s continuing interest in the situation, spoiling their TV viewing.

2. Non-political souls who love Key regardless of anything he says and does, and have made up their mind long, long ago based on his smile and charm.

3. Some very intelligent people who really want the National party to win, and are working on strategies to deflect attention from what was said at the Banks-Key meeting and use the media’s interest to advantage.

4. Other intelligent and concerned people who are outraged by most of the events arising out of Key’s initial reaction to turn against the media, and who see the emergence of some aspects of Key’s character that are rather disturbing – probably as disturbing as many felt about the character and influence of Robert Muldoon back in the 1970s and early 80s.

Here’s my list of outrageous and manipulative actions and statements around this affair:

A. The initial inviting of the media scrum for the staged event (endorsing the ACT party candidate John Banks in the Epsom electorate and thereby to take advantage of and, in the eyes of some, manipulate the rules of the MMP voting system) and expecting to manipulate the publicity of the endorsement via a compliant, eager-puppy media. This displays the arrogance of a person who is fully self-assured that he’s running the whole show on behalf of his adoring supporters.

B. Being so stupid (this one I still struggle to believe) as to risk the outcome of the event by talking about anything other than the weather. To assume there were no lip-readers or people with acute hearing through the glass partition or from nearby tables is cockiness at best, and the stupidity of people who think they are untouchable at worst.

To claim since that it was a private meeting was insulting to any thinking person. If you need a private conversation, go somewhere where it’s private; if you want to be seen to be talking beside cameras as close as a metre away, then at least keep it squeaky clean.

C. The inability of Key to come clean from the start, take it on the chin and get on. Or was this a considered strategy to deflect attention from opposition parties’ policy debates? Or a way of getting popularity be attacking the media who many people wish would shut up? Or simply gaining sympathy for the poor old media victim John Key?

D. Calling in the police to chase up evidence of a possible crime is disturbing, especially so when the police then threaten media outlets to keep quiet. Over such a minor thing and in the hurly burly of an election campaign, does this indicate how Key thinks he should maintain authority and control of the debate and the populace in general?

E. Invoking analogies with the News of the World scandal began a series of desperate responses by Key which have since become ever-more insulting to intelligent people. They show him to be rattled and speaking without thinking.

F. For example, invoking the “slippery slide” argument by using an extreme and outrageous example of a youth committing suicide as a result of a secret taping of his/her parents talking. What kind of idiot does he think I am?

G. Assuming the guilt of the cameraman, and slandering him (innocent until proven guilty?) about a “crime” that hasn’t yet even been established, while at the same time claiming he is taking a “principled” stand against such “crimes”. This, along with calling in the police, smacks of a worried man in a position of power using his office to rein in his subjects.

H. Saying that the police have new-found spare time to do the work of investigating this “crime”. What an insult to the busy police force, and to anyone who’s still waiting for police to investigate a real crime such a break-in of their house. Some claim Key was just joking, but looking at his face on camera as he spoke, I doubt it.

I. Risking the sight of police marching through media offices with search warrants and confiscating papers, even ones that are not directly related to the recording. This sounds like a police “fishing” expedition, will make long-term enemies of the media, and looks even more like abuse of Key’s privileged position.

J. Giving Winston Peters (who I cannot stand but acknowledge his political nous) the chance to dare police to arrest him for saying what he has already, thus gaining a huge boost in votes from his core constituency. And by not allowing the conversation to be made public, Key is inviting Peters and others to suggest all sorts of other mischief about what may have been said, even if it wasn’t.

K. Increasing the risk that the Epsom voters, seeing themselves as being thought stupid for going along with the manipulation, will not do as told and vote for National instead. National voters have pride too!

L. And finally, Key is setting up his probable next term of government with an angry New Zealand Herald, and other top media, as enemies. Until now, most have given the appearance of being supportive of Key on balance, but after search warrants and “don’t publish” threats, those days are past.

My main annoyance is seeing and hearing Key and his team talking as if I’m totally stupid. His efforts to defeat the media are insulting to the thinking electorate (except those who are forced to defend him).

What the saga does show is more about Key’s character. I wrote in an earlier blog article  that I was becoming increasingly concerned at glimpses of another Key, one who gets nasty when he doesn’t like the questions or challenges from journalists. One whose face reveals a nervous, shifty demeanour when caught out. Apparently he was nicknamed the “smiling assassin” or something like that when he was a money market man. Seeing his refusal to engage with the media now shows continuing attempts to manipulate the media by blaming them. All with a smiling mask on his face.

The teapot incident has shown us even more of this other side to his beaming smile. Clearly in his makeup there is some combination of arrogance, disrespect for the voting public, inability to consider losing, and pig-headedness when things start going wrong.

We may not altogether like the political media, especially those currently hounding on this issue, but media digging for basic facts is a vital if sometimes irritating part of a free democracy. If we say they should just shut up and report what politicians want us to hear, we may as well let them be a compliant tool of the political elite. And that is a slippery slope which we must always be aware of and avoid, no matter who may be embarrassed by being found out.

 

3 Comments | Media reporting, Politics | Tagged: , , , , , , , | Permalink
Posted by David Armstrong

Political media’s job should be to report, not decide for us

November 7, 2011

I’ve been somewhat torn on whether or not to write much (or anything at all) about specifics related to New Zealand’s general election, to be held in a few weeks. I did comment on the Capital Gains Tax back in July, and on John Key’s mask a few weeks ago. But here’s my first – and possibly my last – contribution to the thousands of articles and blogs already floating around on the election campaign itself.

I’m finding this campaign one of the more interesting for the past 15 years or so, in that for a change there are significant policy differences between the two major parties, and the Greens are also playing a solid part in the game.

I’m still listening to and reading about many policy details from several parties, and I’ve already changed my mind on which party I’ll be voting for – and may do again before polling day. (I’ve decided to give my electorate vote to Damien O’Connor, but my party vote remains open.)

I’m not going to add anything of substance to the debates on the various major issues, but do have some concerns – indeed, irritation, maybe even anger – over the part that most of the media are playing in the process. Normally one expects various media have their own leanings and emphases, but I feel that this time around the bulk are (perhaps even deliberately) building and working around a debate framework which is less about actual policies and more about how people are reacting to policies.

What I mean is that most of the media pundits are making an effort to push their own opinion about whether this policy will be unpopular, that one doesn’t need scrutiny and this or that politician is or isn’t doing well in selling their message. Telling us, in other words, how we should be reacting.

Of course, it all started many, many months ago when every media outlet continued to play on the inability of Labour’s Phil Goff to gain any ground in the personal popularity stakes against the seemingly invincible incumbent PM, John Key. While it is perfectly valid for media to report on poll results, constant interpretation by reporters and political editors that Goff hasn’t a chance feeds a negative cycle in which people subsequently surveyed use that prediction to decide not to vote for Goff. (Keep reading to the end to see a simple up-to-date example of this.)

(It’s like the business confidence surveys which ask businesses whether things are looking up or down – most go with the current trend for the very good reason that if most others believe things are getting worse then things will most likely get worse, regardless of what any individual business can do.)

This became so bad as the year went on that whenever Goff made any statement of positive policy or criticism, it was cast by reporters in the light of “well who cares, because he won’t get in anyhow” and “he’s in a desperate position so he has to start saying desperate things”.

Now in the election campaign proper, this slant has continued. Personally, I was heartened to hear that Labour proposed to gradually raise the retirement age, following its decision to advocate a capital gains tax, which I also firmly agree with. (See an earlier blog.)

Over the years political commentators have consistently criticised Labour and National for being either (or both) meek/safe in their campaign policy announcements or putting up only popular promises like subsidies and price cuts. Finally a party gets the nerve to propose some (desperately needed, these days) things which may not be popular in the short term but which are fairer and better in the long run, and the main political commentary is that Labour must be desperate, with reporters looking around for people to tell us all how bad this will be for them (eg, 40 year olds saying they won’t want to work for two more years when they get to 65).

If Labour had played it safe they would have been slated for being timid and offering nothing new, having no vision, etc.

Then there was the great excitement among commentators over John Key’s “Show us the money” crack. Some could hardly contain themselves, replaying it over and over like it was the most profound statement a politician had ever made. One TV3 guy even told us seriously that Key had “crucified” Goff with the taunt. I thought the debate itself was fair enough – Key had a right to question Goff about policy costings, but for the commentators to jump in and tell what we should think about it is simply unfair. Both political leaders should be scrutinised by the media over their party’s policy costings, with equal fervour but without editorialising.

Want an example of how the media consistently work to undermine Labour? It’s often subtle, almost hidden, but it’s there once looked for. I didn’t have to go far – this morning’s edition of The Press, (page 6 lead):

The actual story was that Winston Peters said his NZ First Party (a minor third party for those readers not familiar with our elections) will not go into coalition with any other party after the elections. The headline was fair: “Peters rules out any coalition deals”. Then the article proper starts with: “New Zealand First leader Winston Peters may have destroyed Labour’s already slim chances of creating a coalition government after announcing he would not work with them”

There are three below-the-belt strikes here; did you spot them? First, the main story (and therefore the intro) should have been about Peters’ decision, not about what affect it may have on just one of the other parties in the race (no comment made about what affect it may have on National). Second, the use of the phrase “destroyed” – who would bother voting for Labour if they are constantly told there is no point, that their chances are now destroyed? And third, the totally unnecessary inclusion of Labour’s “already slim” chances. That is the subtlest but probably most insidious piece of editorialising in this news story.

I haven’t voted for Labour for some years, but I may well do it this time around. I refuse to be led by media who have forgotten their job of reporting the facts and decided they should also guide the debate and choose sides for us.

1 Comment | Media reporting, Politics | Tagged: , , , | Permalink
Posted by David Armstrong

One change to MMP that would not work

October 21, 2011

We have a referendum coming up which is essentially a citizens’ review of the MMP (mixed member proportional) election system used in New Zealand since the mid-1990s. We are promised that if we choose to retain MMP then the Electoral Commission will do some fine-tuning to the MMP rules.

Given that polls so far suggest MMP will stay, much of the rather infrequent discussion on the topic this year has been on what we don’t like about MMP – viewed by both anti- and pro-MMP camps.

For the record, I too am one who believes that MMP is better than the alternatives, but could do with some tweaking to make it fairer.

In this article I want to address one common criticism of MMP which I think is an unfair criticism. The guts of MMP is that about one-half of successful candidates are voted in through winning geographic electorates in a winner-takes-all manner, and the remainder of seats in parliament are filled from the top of each party’s list to make up true proportional representation of parliament overall, for each party getting over the 4% party-vote threshold.

Most candidates stand within an electorate and are also placed on the party list (though a few choose solely one or the other). If they are high enough on the list, they take a seat in parliament whether or not they win their electorate seat.

What rankles many people is that if a candidate loses the electorate vote (and especially if they had held the seat so have now been dumped or voted out) they can, if ranked highly by the party organisation, remain in parliament.

Detractors call this, “sneaking in by the back door”, and demand a rule change that says that if a candidate loses the electorate vote they cannot then get in on the list. Otherwise, they say, how can you vote someone out who has not served you well?

This request sounds reasonable at first, and it appeals to a common Kiwi attitude (which also comes out in law and order issues and when people demand someone be blamed for things that go wrong) of needing to punish a politician seen as unpopular, unfashionable ineffective or simply in the wrong party.

I have two problems with this punishment-motivated attitude, which makes me believe that making such a rule for MMP would have far more downsides (and serious ones at that) than benefits.

First, such a rule would make it very much harder for aspiring and promising young politicians to enter the game. In fact, the only two ways they could enter parliament would be either:

(1) be placed in a very safe seat for that party – meaning they would have to wait until such seats are vacated by old-time stalwarts; or

(2) avoid standing for any electorate seat, which they would likely lose due to their inexperience, and instead work their way up the party list from the outside to an electable position, a process which could take many years.

One of the roles of electorate voting (in which only one candidate can succeed) is that it gives a starting point for new talent, providing them experience and an opportunity to show their party their vote-winning talents. Banning losers from being successful on the list would stifle that talent.

My second big problem with this (potential) change of rule is that sometimes very good politicians in marginal seats, who still have a worthy contribution to make even in opposition, are victims of swings against a government. Their seat loss may have very little to do with their own ability but more to do with a change in fashion or national mood.

Certainly, there are some parliamentarians who deserve to lose their seat due to poor performance. They are best dealt with through a lowish list ranking so would lose their seat anyway in a party swing. But I believe there would be many more pollies who do not deserve to lose their place in parliament when their party goes out of favour.

To make it a rule that candidates who don’t win an electorate seat cannot get in on the list would provide us with a parliament made up of never-retiring politicians on both sides who managed to get safe seats, along with a random assortment of others who chanced their arms in marginal seats or were accepted purely on list positions, having not even campaigned.

 

1 Comment | Politics | Tagged: , , , , | Permalink
Posted by David Armstrong

« Previous Entries
Next Entries »
Follow

Get every new post delivered to your Inbox.

Join 25 other followers