State Services Commissioner Peter Hughes is not impressed his advice for a more modest pay increase was not heeded.

The public service watchdog has delivered a warning to the board of Guardians of the Super Fund: It does not operate outside of public accountability.

In an extraordinary statement, State Services Commissioner Peter Hughes has admonished the decision of the Super fund to disregard advice over an appropriate pay rise for its chief executive Adrian Orr.

The Super Fund released its justification for bumping his base salary up another 2.7 per cent in its annual report - pre-empting the typical release in the annual disclosure of chief executive remuneration.

MAARTEN HOLL/ FAIRFAX NZ Another big pay rise for Adrian Orr - a 2.7 per cent bump to his base salary.

The 2016-17 pay rise for Orr comes on top of the potential 35.6 per cent pay rise he received the year prior, and is more than the 1 per cent Hughes recommended was more appropriate for a public sector chief executive.

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A Super Fund spokeswoman said Orr received an actual 23.3 per cent pay rise in 2015-16.

Along with additional performance bonuses totalling a 14.7 per cent increase to his pay, Orr earned more than $1.2 million - up from $1.06m the year before. He manages a $35b investment fund, which increased by $5.2b in the 2016-17 year.

Both the SSC and the Guardians have released documents behind their decisions in a move that has all the hallmarks of a power struggle between the public sector watchdog and the crown entity.

The Guardians do not believe their chief executive should be bound by public sector pay scales, while the SSC has warned Orr is paid by the taxpayer and that needs to be balanced against the size of his job.

Hughes' document release includes officials' emails setting out their expectations that Orr should not be paid more than $1.1m in the year beginning July 1, 2016.

It came with the advice the Guardians "may wish to consult with your minister if you decide not to accept this advice".

Documents show they did consult with Finance Minister Steven Joyce and the SSC also delivered a briefing to Joyce and State Services Minister Paula Bennett in May this year.

On August 9, Joyce and the SSC were delivered a letter from the board of the Guardians informing them of their final decision Orr would receive a 2.7 per cent pay rise.

In their annual report, the Guardians said it was justified because "the public sector pay scale recommended by the State Services Commission is not, in the Board's view, appropriate for setting the CEO's remuneration".

"The Guardians operates in a highly competitive market, and its global mandate, highly specialised financial and investment focus and the potential of difficulty in replacing the CEO's skill set requires a directly meaningful and relevant market-based benchmark.

"In setting the CEO's remuneration, the Board therefore considers remuneration paid by public and private sector organisations and comparable public funds," it said in the report.

In response, Hughes on Tuesday released his own documentation along with comments warning the Guardians that although they are an Autonomous Crown Entity, they do not operate outside the bounds of public accountability.

"I do not accept the argument that Crown Entities such as Guardians of New Zealand Superannuation should be able to make decisions free of any public sector oversight or accountability," Hughes said.

"This is a public agency investing public money for the good of the public. And the Chief Executive's remuneration is paid by taxpayers.

"Crown Entities have a strong element of public service attached to their work and executives should reasonably expect to earn less than in a private sector company."

Hughes said that from this year, where board decisions on chief executive remuneration were not consistent with his advice, he would be ensuring that was recorded transparently in the annual disclosure of chief executives pay.