Gareth Morgan, Director of Gareth Morgan Investments
Traditionally spring has been the season for much posturing by politicians employers and unions as they jostle for a position on where wages should go. Remember the tri-partite conferences and the need to compensate for inflation? Mike Moore’s Growth Agreement finally put paid to the idea that wages should be linked inexorably to inflation.
Substantial progress has been achieved in delivering a flexible labour market in New Zealand; much of it achieved by enlightened unions and employers, rather than via legislative changes. The depressed state of domestic demand and the rising level of unemployment have been more significant factors in driving labour market flexibility than the incantations of the policy makers.
Companies entering another round of wage negotiations will no doubt have considered the implications for their business of the Employment Contracts Act and the soft labour market conditions. What some might find difficult to come to terms with is the idea that wages can, and in many cases may need to, be reduced rather than increased. There are a growing number of examples of where remuneration has been reduced – Fisher & Paykel executives took a high profile cut in their remuneration (as did their shareholders) and Wellington bus drivers have also been cornered into a $1 an hour reduction in their income.
Increasingly employers are going to have to assess what individual employees are worth rather than simply looking at how their existing package should be changed in relation to last year. A new, zero-based, approach to wage setting could throw up a few surprises in the upper echelons of companies as managers packages are compared to performance and possible replacement costs. The performance, productivity and innovation of managers is increasingly the bottle- neck for many companies. The factory floor has been rationalised, costs have been wrung dry, now the emphasis will be on the ability of managers to orientate companies to new practices, products and markets.
It is important that remuneration is flexible both up and down. Wages and salaries can include some powerful messages about individual’s performance and the financial strength of the orgaflisation. When these signals are obscured by the ingrained view that remuneration levels never fall real productivity improvements are stymied.
Bonuses are an anachronism. Recent examples of performance bonuses in the local and central government areas are gross. Here we have well paid executives being offered extra income if they meet certain targets, which in probably most instances are pretty much in keeping with the job itself. It makes one wonder what the base salary is for – just turning up for work? Bonuses maybe regarded as an incentive for employees to attain certain performance standards, but if these can be identified why not make it part of the package. And if they need any incentive to meet the requirements laid down offer them the sack. Bonuses are appropriate in high risk businesses or where there is considerable uncertainty about earnings, but not in a secure business like local or central government surely?
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