Marryatt pay saga: potential conflict of interest?

by Fiona Rae / 20 February, 2012
The firm that advised the Christchurch City Council on Tony Marryatt's pay package has defended its role.

Strategic Pay managing director John McGill says his firm advised the Mayor and councillors on Marryatt’s annual pay review, over the same period that Marryatt was hiring the firm for other work. In other words, it was advising on the CEO’s pay, whilst also getting work from the CEO. “Christchurch City Council have been clients of ours for a long time. We would work generally quite closely with the chief executive when it comes to looking at their direct reports,” says John McGill.

Does that not create a potential conflict of interest? “Yes, a potential conflict of interest is always there, yes, but we believe in, subject to the usual rules of confidentiality and commercial sensitivity, in being sensitive to the fact there is a potential conflict of interest and we want to appear squeaky clean.”

Last month Marryatt turned down a $68,000 pay rise after public outrage. Councillors voted for the rise after a report from Strategic Pay benchmarking Marryatt’s salary against rates in the private and public sectors. Strategic Pay said the market median for Marryatt’s job had risen by 5.1%, to $495,000, and that he should be paid at that level or up to $509,000 for “satisfactory” performance. Mayor Bob Parker, head of the remuneration committee, recommended to the full council that Marryatt be paid 9% above median, taking the total to a 14% rise, or $540,000.

In the latest development in the Marryatt saga, the embattled CEO told Newstalk ZB that he would leave his job if he loses the support of council.

In the United States the Securities and Exchange Commission brought in new rules in 2010 to deal with concerns that potential conflicts of interest by remuneration advisors are feeding spiraling CEO pay. A US House of Representatives report in December 2007 found such conflicts of interest were “pervasive” and that “in many cases, the consultants who are advising on executive pay are simultaneously receiving millions of dollars from the corporate executives whose compensation they are supposed to assess”. The new rules require firms to disclose the fees they pay to consultants on executive pay, if the consultants are also hired for other work. New Zealand has no such rules requiring firms or organisations to disclose potential conflicts in their use of remuneration consultants.

McGill says Strategic Pay tries to ensure there is no conflict in terms of what the firm does, “insofar as we can”. “There aren’t very many organisations who specialise in this work in New Zealand.” Strategic Pay were also the advisors to the Kapiti District Council, which recently hiked the pay of its CEO Pat Dougherty by $44,000 on the grounds neither of competence nor performance, but because he was being paid “substantially less than the market rate”.

The Christchurch City Council declined to give the Listener any details of how much work Strategic Pay had done for the council’s executive team over time, or the value of that work, by press time. It said the request would be dealt with under the Official Information Act, which would take 20 working days.

Click here for Ruth Laugesen's story about excessive executive salaries.
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