Summerset to grapple with ripple effect from caregiver wage increase

Summerset Group's board came under pressure regarding its plans for wage-earners who won't benefit from a recent government-funded lift in caregiver wages at its annual meeting in Wellington, but said it plans to be proactive.  

Earlier this month the government announced it would implement a historic pay equity pay deal for aged and residential care workers worth $2.05 billion of extra pay over four years for some 55,000 people – close to 2 percent of the total New Zealand workforce.

Summerset chief executive Julian Cook said "we are very pleased that a settlement has been reached and that wages for caregivers and the funding to match this will come into place shortly." However, several shareholders questioned what the company was going to do about the workers who won't benefit from the deal as well as the potential flow-on effect with other workers, such as nursing staff given the reduced pay gap. 

Directors Grainne Troute and Andrew Wong - both elected Thursday - were asked what they were going to do to ensure that the benefits of the equal pay settlement extended to other staff.

Troute underscored it as a challenge the board "will be grappling with" and the need to be able to attract the best quality of staff applies to all areas of the business while Wong said that people will be looking at what they earn and what it means for the jobs they do and "we will have to respond to that if we want to get the best people to do the jobs we are asking them to do." 

Chairman Rob Campbell, also re-elected Thursday, stressed that the board hasn't seen the detail of the settlement and said that "some of these matters are matters for negotiation." He recognised there "will be flow-ons but exactly what those flow-ons will be I don't think anyone on the board is really in a position to say at this stage."  

Cambell emphasised the company will be proactive and said "we don't see the future of this business as being dependent on low wages or exploitation. We want to have a business that is based on paying people fairly and equitably and we will do that," he said. 

In the year to Dec. 31, Summerset's employee expenses totalled $40.5 million and made up more than half of its $71.1 million in operating expenses. 

Across town in a pre-Budget speech the Wellington Chamber of Commerce, Finance Minister Steven Joyce today downplayed the potential ripple effect of the government's move into other sectors. “The barrier is rightly set high because a flow-on to other sectors would mean going back to the old relativities that these workers have just won the right to get away from.”

According to Joyce, "if you have a number of employers and you have people being competed for with different employers you tend to find a rate which is effectively a market hourly rate rather than something that's a bit artificial" where there's a central funding body such as the government in the case of the caregiver settlement. 

Looking ahead, Summerset did not offer any new guidance at the annual meeting but did warn that it was beginning to see some impact from capacity constraints in the construction market.

"Auckland based developments are currently being delivered in a construction market which is feeling much strain," said chief executive Julian Cook. The company is insulated to some degree as it acts as the main contractor on site, but "we are not immune from these pressures completely. We have seen one-to-two month delays on some projects and have also seen cost pressures coming through," said Cook. Contractor availability is also an issue given the high workload in the market.

It remains on track for a retirement unit build of around 450 units this year, however, "shareholders should be aware that these issues exist," he said. 

In calendar 2016, Summerset improved its development margin to 22.2 percent from 20 percent benefiting from internal management and design of its construction sites, and its larger scale. Today, Cook said there was clearly more pressure on the construction process but "we are expecting the development margin to be there or thereabouts what we are delivering." 

The shares were trading down 1.3 percent at $5.22 but have gained 19 percent over the past year. 

(BusinessDesk)