CEO pay worries investor lobby

The Shareholders Association says boards of directors need to be more aware of their social responsibilities when setting pay for chief executives.

Chairman John Hawkins said continued high growth in excess of what other employees were getting had to be reined in.

Chief executives’ pay in New Zealand is rising five times faster than workers’ incomes, according to a new report by Otago Business School researcher Dr Helen Roberts.

Almost half of all New Zealand chief executives now earn at least $500,000 compared with 10 per cent in 1997 – adjusted for inflation.

But when other incentives are included it means chief executive rewards are up 114 per cent in 17 years while mean real worker income is up 26 per cent.

Chief executives are now paid 30 to 50 times more than the average wage, which is $60,000.

Hawkins said it was concerning if the chief executive increase was going up so much faster than wage rises.

‘‘Some of it is related to extra complexity with more regulation for things like occupational safety and health. To what degree is that reasonable?

‘‘We’re saying to companies – ‘moderation’ – and we’re not interested in this benchmarking business where you constantly look at what others are getting, because that just leads to an upward spiral.’’

Hawkins said he had never seen a benchmark exercise result in a decrease.

‘‘We suggest a holistic approach to decide what the job is worth, the company’s performance, complexity, competition in the market and so on.

‘‘We’re pragmatic too. It’s important to have good people running them. There’s a fairly small cohort of people who can run a large company but boards should be pushing back in the interests of social desirability.

‘‘If they need overseas people, they may have to pay for them but directors and chief executives may do the job for other reasons.’’

There were many attractions to working in New Zealand and pay was just one of them, Hawkins said.

‘‘Where we’ll really object is when companies are not doing well and boards and chief executives continue to have a ‘we deserve’ approach.

‘‘Companies are becoming more aware of the social pressure on them.’’

Hawkins said the Shareholders Association had produced a simple booklet to evaluate jobs and some companies were beginning to use it.

But Institute of directors chief executive Kirsten Patterson said chief executive pay was simply reflecting the market for increasingly complex jobs.

‘‘It’s a global environment and we have to compete globally for talent. More companies have to compare themselves with like-minded organisations in other countries.

‘‘While we have seen increases in CEO pay in this latest survey the ratios are still much lower than international markets we would compare against.’’

Meanwhile, Roberts’ study showed the chief executive pay ratio in the US was typically between 300 and 500 times that of the average wage, but in some cases exceeded 1000 times.

Roberts also said chief executive pay had outmatched company performance.

While some downturns, like the global financial crisis in 2008 dampened the increases, they still rose.