Would you take a $15m pay cut?

In October, senior Wal-mart executive Greg Foran was appointed as the new chief executive of Air New Zealand. The respected retail boss starts in February and will step into the shoes of New Zealand’s best-paid chief executive, Christopher Luxon.

Luxon took home $4.2 million in his final year running our national flag carrier, a mammoth salary compared to most listedcompany executives in this country.

But Foran is taking a pay cut. While at the American retail giant, the Kiwi took home a salary of roughly NZ$20M a year.

The airline’s coup in luring a top executive from the US comes as most companies face a fight to stop the best talent leaving our shores.

Chief executive pay in New Zealand has increased at more than double the rate of the average worker’s income over the past 30 years. One of the reasons often cited is that Kiwi companies have to keep up to compete with international players to attract top people.

But to what extent is that really true?

John Mcgill, chief executive of consultancy firm Strategicpay, has helped companies with their remuneration strategies for more than 30 years. He says international pay has a

‘‘variable’’ effect on chief executive pay in New Zealand, and mainly when companies interview candidates from North America and Europe.

‘‘If they’ve got candidates in those locations, the salary and the structures they have overseas will have a bearing,’’ Mcgill says. ‘‘In most cases, the discussions involve the actual level of pay, and for a registrable number of appointments, an alignment with the equivalent salary overseas would be expected and met.’’

He says Kiwi companies will ‘‘take a look’’ at Australian competitors, who tend to be at the ‘‘top end’’ of OECD statistics for average pay. New Zealand is at the ‘‘middle of the pack’’.

Mcgill says chief executive pay has increased ‘‘significantly’’ in recent years, but believes New Zealand companies find it tough to compete with bigger corporates in larger international markets.

‘‘It is difficult,’’ Mcgill says. ‘‘We’re a great training ground in terms of our education and legal system, and the way we do business. But we’re a small economy, and a lot of our companies are relatively small, compared to a lot of other countries.’’

But Helen Roberts, a senior lecturer in the Otago University department of accountancy and finance, said Foran’s appointment showed that people sometimes had other reasons for taking New Zealand roles. ‘‘I don’t think that captures the full truth of what the job entails or why they would be attracted to do the job.’’

Luxon’s $4.2m Air New Zealand pay packet in the last financial year compares favourably with some of the airline’s European peers. The boss of Finnair, the Finnish flag carrier which earns roughly $1 billion less revenue than Air New Zealand, took home €1.4m ($2.4m) in his final year in charge.

For many years, New Zealand’s best-paid boss was Theo

Spierings, former Fonterra chief executive. Spierings, who oversaw a series of failed strategic moves, received a $4.6m payoff in August after leaving his job. He took home more than $8m in 2018, despite Fonterra making a $196m loss that year.

Executives in the global financial sector are well known for huge salaries, and New Zealand is no exception. David Hisco took home $3.35m in his final full year in charge of ANZ New Zealand before he departed amid an expenses scandal.

But the people running the region’s biggest banking groups take larger salaries than those at the helm of the New Zealand businesses. Hisco’s former boss, ANZ Banking Group CEO Shayne Elliott, was awarded A$4.09m (NZ$4.31M) in cash but A$7.8m including deferred share and performance rights in the 2019 financial year.

Kiwi Ross Mcewan, the new boss of National Australia Bank, will receive a base salary of A$2.5m. Mcewan’s salary could reach $9.9m, including incentives. Pay in the US dwarfs anything on this side of the world – Jamie Dimon, chief executive of Wall Street titan JP Morgan, took home US$31M (NZ$48.2M) last year.

As chief executive pay continues to rise in line with international trends, experts predict an increased focus on remuneration in the years to come.

Changes to the NZX Corporate Governance Code in 2017 forced companies to be more transparent on remuneration, and Mcgill says the new rules have sparked more ‘‘intense’’ focus on salaries. ‘‘There’s going to be more debate and more discussion, and I don’t expect that to go away.’’

More New Zealand companies have begun to follow a global trend of placing more emphasis on long-term incentives, rather than base pay, Mcgill says.

‘‘Organisations are thinking more seriously about longer-term programmes,’’ he adds. ‘‘Basing performance rewards on annual cycles can be dangerous, and lead to results you’re not quite looking for.’’

Sam Stubbs, the founder of Kiwisaver and investment manager Simplicity, wants investors to hold companies to account on their salary structures. He acknowledges the need for companies to be competitive on pay, but says longterm incentives are the best way to go.

‘‘Excellent executives should be well paid, but it’s how closely aligned their pay is with the longterm interests of investors. The biggest problem we have is the mismatch between short-term executives and investors needing long-term returns.’’