Shareholder action on executive salaries ‘unrealistic’
Huge chief executive salaries are back in the spotlight after Fonterra revealed Theo Spierings’ $8.3 million pay package.
Otago University professor Dr Helen Roberts has noted the steadily widening divide between the average income of New Zealanders and that of chief executives over the past 20 years.
She has been comparing the movements in chief executive’s annual pay to that of the average worker since 1997.
Using NZX disclosures and Statistics New Zealand’s income survey, Roberts found the incomes of chief executives (adjusted for inflation) have increased 228 per cent from 1997 to 2015, while the average worker’s rose 91 per cent over the same period.
‘‘[Chief executives are] on a much larger base salary, so they’re going to have a lot more money overall,’’ Roberts said.
In 1997, chief executives earned nine times the median worker’s salary but by 2015 that ratio had increased to 17 times, she said.
Another signal of a growing gap was the proportion of chief executives earning over $500,000. In 1997 this was 10 per cent of all chief executives, and 18 years later, 56 per cent
The average salary for chief executives in 2015 was $1.06m, while the average New Zealander earned $57,117.
Roberts said she was working on updating the data with 2016 figures, but median wages, which businesses do not usually reveal, would make for a more accurate comparison because they were not skewed by the executives’ large salaries.
She said companies disclosed their median wages privately to consultant companies, who in turn used their large database of these figures when they were hired to advise on what chief executives should be paid.
Strategic Pay chief executive John Mcgill, who has been a remuneration consultant for 30 years, said he recently began providing a summary of his remuneration reports to the NZX, and more transparency was inevitable.
‘‘We will be able to read more about what the remuneration policy is; where they pay in the market; what the key performance indicators are for the chief executive are.’’
Chief executives were well aware they were well paid, he said.
His company’s surveys have found chief executives would be prepared to accept lower levels of pay in different circumstances.
‘‘The very good chief executives often move between sectors and, from my experience, are quite happy to accept lower levels of pay in different markets that pay in different rates.’’
However, the large gap between the average worker and a chief executive is a global one.
In Spierings’ home country, the Netherlands, chief executives are paid 172 times the average salary, the ninth highest in the OECD.
In South Africa, chief executives receive, on average, 541 times more. India has the next highest ratio at 483 times, followed by the United States at 299 times.
Spierings earns the equivalent of the salary of a New Zealand MP, $160,000, in a week.
NZ First leader Winston Peters labelled Spierings’ $8.31m pay packet a ‘‘fat cat payout’’ and wants shareholders given the power to hold directors to account.
But inequality researcher Max Rashbrooke told Guyon Espiner on RNZ that would be unrealistic.
‘‘I think it’s hard to expect much to come out of shareholders,’’ he said.
‘‘Because of the nature of modern capitalism, most shareholders are not actually that deeply involved in the companies they own and so to expect them to do anything much is unrealistic.’’
Rashbrooke said the public tended to get upset at the release of a chief executive’s salary because it lacked an ‘‘instinctive sense of fairness’’.
‘‘Is another human being worth 200 times another one?’’