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Auckland District Health Board Payment

26 September 2001 Media Statement

Auckland District Health Board Payment

State Services Minister Trevor Mallard today released the State Services Commission's report into Auckland District Health Board and a payment it made to its chief executive.

"In June the State Services Commission learned that the Auckland Health and Hospital Board had made a $30,000 payment to its Chief Executive," Trevor Mallard said.

"This unusual payment was made late last year without the knowledge of the State Services Commission and without the knowledge of Ministers, notwithstanding extensive consultation with the Board Chair on the question of the Chief Executives package.

"Upon learning of the payment I asked the State Services Commission to investigate its legality and the potential to seek repayment of the money. The Commission has now reported that the payment, although not illegal, appears at least to have been made in contravention of the spirit of the arrangements the Government was putting in place to ensure a transparent and conservative approach to health chief executive remuneration.

"I am reassured that the New Zealand Public Health and Disability Act will prevent such payments in the future. However, the Commission also advises me that there are no legal grounds to seek repayment of the money.

"I have written to the Chair of the Auckland District Health Board to make it clear that Ministers are most unhappy with the payment. I find it unacceptable that the Board did not discuss the proposed payment with the State Services Commission or me.

"The Board now stands publicly accountable for its decision."
ENDS

Attached:
Letter from Trevor Mallard to Auckland District Health Board
Report from SSC to Minister

27 August 2001

Minister of State Services

Auckland District Health Board – Ceo Payment
Introduction

1 You have asked for advice on the $30,000 paid to the chief executive of the Auckland District Health Board by Auckland Healthcare Services Limited, the former Health and Hospital Service (HHS).

Background

2 Graeme Edmond was chief executive of Auckland Healthcare Services Limited. The Board was keen to retain his services on transition to the new District Health Board, and Richard Waddell, the Chair of the HHS, made that view clear both to Ministers and to the Commission during the transition process.

3 The Board elected to make a “late” substantive chief executive appointment for the new DHB, with the effect that Mr Edmond was to be “acting” chief executive from the establishment of the DHB until a substantive appointment was made. However, the Board then opted to make an “early” appointment. Following a contestable process early this year, the board appointed Mr Edmond as the substantive chief executive.

4 Mr Edmond’s contract with the HHS entitled him to a package in the range $420,000 – 430,000. In addition he was entitled to an additional performance payment based on achievement of certain milestones by March 2003. The level of Mr Edmond’s remuneration and the ability to match it under the new regime was a matter of continuing concern both for the Board and for Mr Edmond. The matter was referred to you with the result that you approved continuation of the base $420,000 - 430,000 package, and a one-off payment to discharge any obligation to the chief executive in respect of the additional performance payment. The $420,000 - 430,000 package has also been carried over to his substantive appointment.

Additional payment of $30,000

5 The Commission learned late in June 2001 that the Board had paid Mr Edmond the sum of $30,000 – over and above the performance payment you approved.

6 The Board did not consult the State Services Commissioner prior to making the $30,000 payment.

7 The Board argues, in short, that the payment did not amount to a variation of Mr Edmond’s terms and conditions of employment with the HHS. The payment was a separate arrangement to recognise the reduced value of the DHB package he was to be asked to accept, and to provide an incentive for him to do so.

SSC view

8 I agree that the payment did not amount to a variation of the chief executive conditions of employment with the HHS. Had they been varied, then the Board should have first consulted the State Services Commissioner. The payment appears to be ex gratia in nature. That is, it was made at the discretion of the HHS Board, rather than as part of an agreement between the Board and chief executive as employer and employee. Further, the payment, at least as far as it was an incentive to accept the new contract, did not relate to the HHS employment.
9 Equally, the payment was not one made by the DHB Board, as a condition of the chief executive’s employment by that Board, for which the Board would have required the consent of the State Services Commissioner. The New Zealand Public Health and Disability Act 2000 did not come into force, for the purpose of establishing transitional DHB boards, until 15 December 2000. Nevertheless, the HHS Board knew that the Minister of Health expected it to act as the transitional DHB Board, and to obtain the consent of the State Services Commissioner in matters relating to chief executive remuneration, even in advance of the legislation.

10 While I am satisfied that, technically, the HHS Board was not required to consult the State Services Commissioner prior to making the payment, it is at least odd that the chairman neglected to mention the proposal to the Commission, despite extensive contact at the time. After all, the compensation of the chief executive, and the Board’s desire to retain his services, were topics of conversation and correspondence between the Chairman and the Commission for three months.

11 On 16 November 2000, the Commission sought Ministers’ views on the remuneration package and treatment of the incentive payment due in 2003. The Chair knew that those matters had been referred to Ministers. The Commission’s file records various discussions between the Chair and the Commission in the period 21 November to 6 December. In the course of three telephone discussions on 11 and 12 December, the Commission relayed the Minister’s approval for the package and one-off payment described above.

12 However, it was within that period that the Chair recommended the additional payment to the Board on 5 December, and the Board approved it at its meeting on 7 December. In that context, the Chairman’s failure to mention to the Commission a payment directly relevant to the question of how to compensate and retain the chief executive is conspicuous.

Further action
13 On this analysis, there are no legal grounds to seek repayment of the money. You may however want to write to the Board expressing displeasure at the payment which, although not illegal, appears at least to have been made in contravention of the spirit of the arrangements in place at the time.

Recommendation

I recommend that you

a note this Report;

b advise whether you wish the Commission to prepare a draft letter for you to send to the Auckland DHB board expressing displeasure at their having made the payment.

Phillippa Smith
Chief Legal Adviser

Mr R Waddel
Chairman
Auckland District Health Board
Green Lane Hospital
Green Lane West
AUCKLAND 3

Dear Mr Waddel
Payment of $30,000 to Chief Executive

Thank you for providing the State Services Commission with an explanation of the circumstances surrounding the payment of $30,000 to the chief executive. I have now received a legal opinion from the Commission’s Chief Legal Advisor and have discussed the matter with my colleague the Minister of Health.

The advice I received stated that the payment was neither a variation of the chief executive’s conditions of employment with the HHS, nor was it one made by the DHB. On this basis it was not, technically, a matter on which you were legally required to consult with or obtain the approval of the State Services Commissioner.

However I want you and the Board to be in no doubt that the Minister of Health and I are most unhappy with the payment. We are very concerned that the Board chose to make such a payment without any discussion with SSC or Ministers.

I find it unacceptable that you neglected to mention the proposed $30,000 payment to the Commission or to Ministers despite extensive contact throughout several months at the end of last year. After all, the compensation of the chief executive, and the Board’s desire to retain his services, was a topic of conversation and correspondence between yourself and the Commission for three months. Any proposed incentive to sign the new contract was clearly part of the overall relationship between the Board and Mr Edmond.

My purpose in writing is to put on record my view that the payment, although technically not illegal, was made in clear contravention of the spirit of the arrangements this government was putting in place for the health sector at the time.

Having said this I now consider this matter closed and anticipate that the Board will concentrate on delivering health services to the people of Auckland.


Yours sincerely
Hon Trevor Mallard
Minister of State Services

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