Report to Council - 26 August 2006

The 2005 Council appointed a committee to carry out a wide review of remuneration across Council, and those who contribute to its activities. The initial re-review committee comprised Jennifer Northover (Chair), and David Harris, David Farrar, Nick Wallingford and Peter Macaulay as committee members.

The subsequent retirement of Nick Wallingford from Council led to the appointment of Rodney Prescott as replacement.

Scope of Review

The committee considered remuneration to

• Councillors

• Officers

• Members of subcommittees, working groups and taskforces, including NZOC

• NZRS

For the purposes of the review, remuneration includes financial and non-financial compensation.

Conflict issues

Conflict issues were discussed, since all members are potentially conflicted in the event recommendations from the review provide benefits.

However since recommendations will go firstly to Council for consideration and thereafter to members it was agreed that conflicts where they exist, are unlikely to influence the final result.

Methodology

For each category of personnel:

1. Define principles for remuneration.

2. Apply the principles to derive actual amounts, where applicable.

Principles are derived from assessing appropriateness of the application, reasonableness, and equivalence to other areas of the public sector.

Principles are applied to determine amounts.

Deliverables

1. Recommend to Council a set of principles for remuneration, and

2. Recommend remuneration amounts for the next financial year by applying the principles.

Remuneration Principles

Remuneration/ Fees Framework

The previous paper from the Honoraria and Directors’ Fees Committee Report (chaired by Keith Davidson) and the earlier work done by a committee chaired by Simon Riley were considered.

Both of these groups determined that InternetNZ as a not for profit organisation fits sufficiently well within the characteristics of crown organisations for which a comprehensive fees framework already exists. This Department of the Prime Minister and Cabinet’s “Fees Framework for Members of Statutory and Other Bodies Appointed by the Crown” (the DPMC framework) is the guiding framework for setting fees for boards, committees and individuals of such entities and their members and officers. The current Fees Framework is set out in document CO (03) 4 dated 1 July 2003.

The committee agrees that:

• The DPMC framework remains the most appropriate and comprehensive set of guidelines to be used.

• InternetNZ entities best fit Group 3 – Management Boards, level I (General Management Boards) as defined in the Framework.

• Remuneration to Councillors and Officers should take the form of fees/honoraria and not be salary-based.

• Fees/honoraria should be realistic in terms of responsibility and level of contribution when matched to the framework. Since InternetNZ does not exactly fit the description of any entity covered in the DPMC, the principles to apply will be based on reasonableness in assessing best fit in terms of risk, accountability, and workload.

• The DPMC will apply to InternetNZ’s entities and personnel other than employed staff.

NZRS

Applying the DPMC framework:

NZRS’s Board of Directors are currently bulk-funded. The Board determines how the total of the funding shall be apportioned to the Chair and individual members.

This committee sees no reason to change this principle.

Directors are selected by an appointments committee on the basis of sets of skills and experience required for the role.

Principles:

1. Applies to payments to Board members of a wholly-owned subsidiary company of InternetNZ.

2. Total fees for the NZRS Board will be bulk-funded and the Board authorised to apportion the total amount to the chair and other directors.

3. The total amount of directors’ fees will be based on the DPMC rules.

4. Group 3 Management Boards applies, on the Framework.

5. Account is taken of the method of appointment and that specific skills and experience are required to merit selection.

6. Account is taken of the accountability for risk and liability attaching to Director status, when assessing fee levels.

Assessing the amount

Criterion	Factor	Level	Score
Criterion 1	Level of operating budget	$5m - $15m	2
Criterion 2	Value of Assets managed	$5m - $15m	1
Criterion 3	Business complexity	Social influence	4
	Total score		7

A score of 7 places InternetNZ on Level 4 of the Fees Framework.

Level 4 Chair: $24,000 - $29,900

Level 4 Member: $12,000 - $14,000

For 2006/2007:

Fees for the Chair and 4 Directors amount to around $80,000. $80,400 is paid currently.

Recommendation:

A total of $80,400 in directors fees is to be provided to the NZRS Board for the 2006/2007 year to be apportioned to the Chair and members as the Board sees fit.

NZOC

NZOC is a subcommittee of Council for which committee members are appointed by an appointments committee.

It is agreed that the reasoning for paying NZOC members honoraria based on DPMC rules continues to apply.

Principles:

1. Applies to members of a subcommittee of Council with special delegations of authority and who are appointed on the basis of skills and merit.

2. Fees for NZOC committee members will be paid as honoraria based on DPMC rules.

3. Group 3 Management Boards applies, on the Framework.

4. Account is taken of the method of appointment and the level of skill and experience required. Also, that the workload is relatively light compared to that of a Board of Directors.

5. The level of accountability for risk and liability of NZOC members is significantly less given that they are not Directors. The responsible corporate entity is the parent, InternetNZ.

6. The honorarium for Chair will therefore be set at the lowest of the applicable fee range for Chair discounted by 25%.

7. The honorarium for NZOC member will be set at the lowest of the applicable fee range for Member discounted by 25%.

8. The honorarium for NZOC Deputy Chair will be set at the honorarium for Member plus 25%.

9. The InternetNZ President, being a member of NZOC ex officio, will receive an NZOC honorarium.

Assessing the amount

Criterion	Factor	Level	Score
Criterion 1	Level of operating budget	$5m and below	1
Criterion 2	Value of Assets managed	$5m and below	0
Criterion 3	Business complexity	Regulatory	3
	Total score:		4

The total score of 4 places NZOC honoraria at the lowest fees level, level 6.

• Complexity of functions and expertise – workload is relatively light,

• Personal liability relating to the role – committee members do not bear the same risk as do directors,

For 2006/2007:

NZOC Chair: lowest fee of Level 6 (Chair) band discounted by 25% gives a fee of $9,000.

NZOC member: $6,000 less 25% = $4,500 per annum.

NZOC Deputy Chair: $4,500 plus 25% = $5,625 per annum.

Recommendation:

Honoraria to NZOC committee members for the 2006/2007 year be paid as follows: $9,000 pa for the Chair; $5,625 pa for the Deputy Chair; $4,500 pa for all other committee members including the President of InternetNZ serving ex officio.

Officers of InternetNZ

The workload of officers was discussed at length.

Officers are not equivalent to Executive Directors.

It is agreed that the DPMC rules apply.

InternetNZ is at level 4 of the DPMC framework.

Officers at times work long hours in carrying out their duties, largely because the work of the Society has grown considerably over the years, but also in part because over recent years the officers have become accustomed to doing the roles in the way that they do.

A year ago it was noted that officer workload was exacerbated due to staff appointments not having been made and that workload would become more realistic once new staff were recruited.

Officers are expected to operate at the higher (governance) level, with staff doing the actual work of Council. Thus, officers will be paid honoraria to acknowledge these roles not compensation for work done.

Responsibilities of Officers:

• liaising with staff

• managing relationships to ensure operations are effective

• interpreting policy of Council

It is noted that the structural review to be carried out later in the year may result in changes to this situation.

Principles for payments to Officers of InternetNZ:

1. This applies to the President and other Officers of InternetNZ.

2. Fees will be paid as honoraria based on DPMC rules.

3. Group 3 Management Boards applies, on the Framework.

4. President and Officers are elected by members of the society. Recognition of skills and expertise would be taken into consideration by members when voting.

5. The level of accountability for risk and liability of Officers is equivalent to members of a Management Board as set out in the Framework.

6. The President of InternetNZ has high exposure in respect of issues and leadership. This elevates the level of responsibility and risk of this position.

7. An Officer who is also appointed as a board member of NZRS or a committee member of NZOC will receive honoraria for each role held.

8. Honoraria for President is to be set at lowest level of applicable fee band.

9. Honoraria for Officers is to be set at lowest level of fee band for Members.

10. A non-Officer member of Executive Committee shall be paid an honorarium at the level of 60% of an Officer honorarium.

Assessing the amount

The current fees table for Management Boards is:

At level 4:

President: $24,000 pa

Officers: $12,000 pa

For the 2006/2007 year:

It is recommended that the President of InternetNZ receive an honorarium of $24,000;

Officers receive an honorarium of $12,000;

A non-Officer member of Executive Committee receive an honorarium of $7,200.

Councillors

Discussion

Over the past 6 to 8 years, an attempt at payments to Councillors was tried at one time for a limited period, on the basis of meeting fees. The administration overhead in tracking performance and attendance proved onerous and the payments were discontinued on a consensus of Council.

The Rem-Review committee agreed that the DPMC framework should apply to Councillors in recognition of their expertise and time commitment. Council is now operating at a higher and more extensive level with a considerable number of projects in process. The workload of Councillors is now more complex than at any time in the past. It is important to acknowledge the value to Council and the wider membership and Internet community of the special skills volunteered to Council activities by Councillors.

It is agreed that Councillors would not be paid honoraria as members under Group 3a (General Management Boards).

It is noted that Councillors are elected by members in an annual election, and are not appointed through a selection process. Aligning Councillors with a Management Board is therefore less relevant than it is for Board members who are appointed through a careful selection process, or for Officers who are elected on the basis of specific skills. Further, workload of Councillors varies considerably according to the number of subcommittees they serve on. Some Councillors serve on 2 or 3 subcomittees while others may serve on as many as 5. It is more appropriate to set payments on a variable basis, such as a per diem. “Subcommittees” in this section excludes NZOC.

Therefore Group 4 of the DPMC framework is considered more appropriate. In this group payments are made to members on a per diem or pro rata basis.

Group 4 covers “a vast array of bodies from advisory committees, to technical review committees to professional regulatory bodies”. And “In all of these bodies the main emphasis is on judgement rather than the management of assets”.

The DPMC sets out criteria for evaluating the organisation’s characteristics and from there the level at which payment to members applies.

Principles for payments to Officers of InternetNZ:

(applies to Councillors of InternetNZ)

1. Group 4 applies, on the DPMC Framework. Group 4 is All Other Committees and Other Bodies.

2. Fees will be paid as pro rata amounts based on DPMC rules. The table of fees for Group 4 is set out as daily rates.

3. Council meetings: Taking into account authority, effort, skills and scope of influence required, the function is assessed as being at the lowest end of the level 3 fee band.

4. Subcommittee and taskforce meetings: Rating authority, effort, skills and scope of influence for attending subcommittee and taskforce meetings, the function is rated to be at the level 4 fee band.

5. A Councillor should be paid a fully daily rate for attending a Council meeting.

6. A Councillor will be paid at half the daily rate for attending a meeting of a subcommittee or taskforce of Council.

7. Officers (and the President) who serve on subcommittees whether as members of a committee or taskforce or as ex officio will not receive per diem fees under this section. Their contributions are covered by their honorarium.

8. Non-Councillors who are co-opted on to taskforces for the value of their skills and contributions, will also be entitled to a fee payment as referred to in principle 6 of this section.

9. Chairs of subcommittees and taskforces, whether Councillors or invited non-Councillors, will be paid at the Chair rate, at 50% (half day) of the applicable DPMC fee. This does not apply to Officers.

10. The daily and half day rates for Council and other meetings should be set at levels that ensure that a Councillor should normally receive less than the honorarium payable to an Officer.

Assessing the amount

Payment levels are set according to a framework of criteria which reflects the level of organisation on the Group 4 basis.

Scores are allocated for Function and Level of Authority, Concentration of effort, skills, knowledge and experience, and scope of influence.

Council meetings: Councillors were rated at a total of 12. 12 is the lowest score of the level 3 band. Member daily rates for level 3 are $250 at the lowest level.

Total for 10 Councillors each attending 6 Council meetings and paid at $250 per meeting is a total remuneration of $15,000. This is considered a reasonable level and commensurate with the level of responsibility and skill.

The committee then assessed the various subcommittees, and the typical number of meetings for each. It was agreed that taskforces should be included.

Applying the criteria for subcommittees and taskforces, resulted in a level 4 assessment. Daily rates for level 4 are $200.

The group considered the likely total compensation for a Councillor on several committees, on the basis of $100 for a half day meeting for each, plus $250 for a full day Council meeting.

A typical Councillor serves on 3-4 committees/taskforces each meeting on average of 6 times per year. If each meeting is compensated at $100 per meeting, the fees would amount to around $2,500. The typical Councillor would therefore receive fees of $4,000 in a year. Of importance, is that this amount compares reasonably with the honoraria payable to an Officer. Officers also serve on numbers of committees and the honorarium is intended to reflect this commitment.

Recommended for 2006/2007 year:

Councillor attendance at Council meeting: $250

Chair of subcommittee/taskforce: $125 per meeting

(applies to Councillors, invited non-Councillors)

Member of subcommittee/taskforce not ex officio $100 per meeting

(applies to Councillors, invited non-Councillors)

Value-added benefits for Councillors

Councillors and Officers should be entitled to non-financial assistance or benefits which relate to the role they play and aid or add value to their performance as Officer/Councillor.

Such benefits should not attract FBT or be taxable in any other way in the hands of the user.

The committee drew up a list of items which would provide such assistance and ranked each according to i) usefulness, and ii) value, where ‘usefulness’ enables a task to be carried out more efficiently, and ‘value’ indicates enhancement to the Councillor/ Officer or attractiveness.

The list we came with is as follows, in descending order of preference:

• Taxi card

• Mobile broadband

• Real email

• Office software

• Governance training (Institute of Directors) provided at the first Council meeting following the AGM.

• Cellphone – for Officers – up to a limit of $150 per month

• Attendance to a relevant conference, fee up to $750, one per 2 years.

• Broadband connection

It is recommended that the Executive Director develop policies for offering and providing the above benefits to Councillors and Officers, including the President, as appropriate.

Volunteers

InternetNZ appreciates considerably the significant contributions made by members who are not on Council. In recent years there have been and continue to be, many instances of substantial value to the InternetNZ and the wider Internet community through these contributions.

It is recommended that where financial members of InternetNZ are selected or invited to participate in a subcommittee or a taskforce, that they should be compensated in the same way as Councillors. The detail of fees payable for subcommittee and taskforce meetings are set out under Councillors.

For the 2006/2007 year these fees are recommended at:

• Chair of subcommittee/taskforce: $125 per meeting

• Member of subcommittee/taskforce: $100 per meeting

Jennifer Northover
Chair

Rem-Review taskforce

CALCULATIONS FOR OFFICER HONORARIA

From the Department of the Prime Minister and Cabinet’s “Fees Framework for Members of Statutory and Other Bodies Appointed by the Crown”, as outlined at www.dpmc.govt.nz/cabinet/circulars/co03/4.html

Group 3: Management Boards

10. These are boards that are primarily responsible for the governance of a Crown body or organisation.

10. Management Boards have responsibility for the strategic direction of the organisation, the determination of business objectives and formulation of policies to achieve these, funding policy and seeing that management does its job. Where the board is overseeing an interest owned by the Crown, the board is usually the link between the shareholder/owner (the Crown) and management, and its members are either appointed by a Minister/the Government or the Governor-General. In some cases, bodies have elected members, or members appointed by stakeholders other than the Minister. The organisation it is overseeing may or may not be a company, and if not, will certainly be subject to the Public Finance Act.

10. A number of trusts also fit into this category.

Level of Management Board

10. There are four distinct categories within this group:

    1. General Management Boards

    2. District Health Boards

    3. Tertiary Education Institution Councils

    4. Subsidiary bodies of statutory entities

10. When you have determined the category that is appropriate to the organisation concerned, assess and score it against each of the relevant criteria set out under each category.

General Management Boards (Group 3a)

10. The first two criteria come from an independently developed and tested protocol for determining the size of company directorships, with an additional layer to recognise the somewhat smaller size of some of the bodies that are not Crown companies. The third criterion (complexity) recognises the functions of the various types of body.

Criterion 1: Level of annual operating budget or annual turnover (GST inclusive)

10. For Crown entities which disburse funds or purchase goods and services on behalf of the Crown, the budget figure used for criterion 1 should be the annual operating budget for the organisation that the board governs. For all other entities, the figure used should be the annual turnover/revenue.

Criterion 2: Value of Total Assets Managed

Total assets = leased and owned, fixed and current.

10. Where a Crown entity is a devolved purchaser or funding disburser, and carries a considerable "float" of cash in the bank or in investments, this may result in its level of total assets being artificially inflated. The asset value should be discounted in situations where the governing task in relation to those assets is significantly less than normal.

Criterion 3: Complexity of the Business

10. Choose one of the following options that best describes the prime function of the organisation:

Option	Prime Function
Devolved Purchaser	An entity that specialises in making purchase decisions on behalf of the Crown. There will almost certainly be a contractual relationship between the entity and the provider of services.
Funding Disbursement	An entity established to distribute grants or funding.
Investment and Management of Funds	An entity involved in the investment and management of funds on behalf of the Crown or for beneficiaries.
Advisory to Crown	An entity advisory to the Crown at a significant level.
Regulatory	The entity will exercise regulatory and/or quasi-judicial power in an independent and objective manner.
Provider of Services and Environment	An entity established to provide services. The level of competition for the services will vary, and there may be limits on competition prescribed by statute or otherwise.
Holder of Ownership Interest	The holder of the Crown’s ownership interest.
Social Influence	The entity is established to improve a social outcome or outcomes through encouraging behaviour change (e.g. healthy lifestyle choices) by promotion of activities and increasing public awareness.

10. Consider and assess the complexity of the prime function in accordance with the following tables:

A devolved purchaser is where the Crown has created an entity to specialise in making

purchase decisions on behalf of the Crown. There will almost certainly be a contractual

relationship between the entity and the provider of services.

OR:

An entity involved in funding disbursement will have been established to distribute grants

or funding.

OR:

An entity involved in the investment and management of funds either on behalf of the

Crown or for beneficiaries.

OR:

An entity, which is advisory to the Crown at a significant level, would be involved in a

major area of economic activity or a policy area of high strategic importance to the

Government.

OR:

The entity will exercise regulatory and/or quasi-judicial power in an independent and

objective manner.

OR:

Points to consider: what is the level of competition for the services; are there any limits on

competition that may be prescribed by statute or otherwise?

OR:

OR:

Process of Classification

10. To ascertain what level the management board falls into for the purposes of selecting the appropriate fee range, add up the scores given for each of the above three criteria.

10. See which of the six levels below the score fits into. The levels relate to the ranges of fees set out in Annex 3. Levels have been developed to give a fair differentiation, for fees purposes, between different sizes of management boards. These are: