Are CEOs worth the big bucks?

The Waikato DHB chief executive Nigel Murray saga highlights a perceived gap between pay and performance.

And while overseas research shows little correlation between big money and competence, New Zealand experts say pay isn’t the issue. It’s a lack of oversight in the public sector.

Murray earned an annual salary of

$539,391 before resigning in October. He supplemented this income with a threeyear, $218,166 spend-up that included 16 trips abroad.

Waikato University finance Professor Stuart Locke said most hospital boards run deficits, making it hard to argue society is getting value for money.

As with other DHB bosses, Murray’s salary was decided by Waikato DHB board members and approved by the State Services Commission (SSC). The commission also approves salaries for government departments, Crown entities and tertiary institutions.

Locke said the commission is competent and sets responsible salaries. ‘‘The problem lies in the health boards. The district health boards have elected people on them and they do not seem to be focused on controlling the finances.

‘‘How can we possibly believe [Murray’s spending] was being monitored, and that was a good deal for our community?’’

Taxpayers’ Union executive director Jordan Williams agreed. ‘‘It would be all right if you paid them that amount and they were as accountable as they are in the private sector, but at the moment they seem to have both the job security and the enormous amount of pay.’’

Huge chief executive salaries – both public and private – have caused debate recently.

In August, Hamilton city councillors signed off on a $60,000 boost to chief executive Richard Briggs’ salary, taking it to $440,000.

He ranks among the region’s top public officials. Wintec chief executive Mark Flowers earns $430,000 to $439,000, and University of Waikato Vice-Chancellor Professor Neil Quigley earns

$470,000 to $479,000, according to the SSC Senior Pay Report 2015 to 2016.

The money in the private sector can be much bigger. In September, Theo Spierings’ $8.3-million pay package was labelled a ‘‘fat cat payout’’ by Winston Peters.

Former SkyCity chief Nigel Morrison received $6.4m in 2016 in base salary, dividends and leave entitlements, while former Fletcher Building chief Mark Adamson got $4.7m.

Otago University professor Dr Helen Roberts, who has tracked New Zealand’s executive salaries since 1997 using NZX disclosures, in September found salaries have increased 228 per cent when adjusted for inflation. By contrast, the average worker’s wage increased 91 per cent.

But the effect of high salaries on performance may be negligible.

A December 2016 study by the CFA Institute, a global association of investment professionals, found the total annual pay for the average chief executive in the top 350 companies on the London Stock Exchange increased by 82 per cent from 2003 to 2015. The level of return on invested capital for the average of these companies was 1 per cent.

A 2016 study by investment research company MSCI found that, of 429 US companies with the largest market capital, companies which paid the chief executive below the sector average paid more shareholder returns from 2006 to 2015. Companies which paid the chief above the average paid as much as 39 per cent less in shareholder returns.

Remuneration consultant John McGill was sceptical about such research, which he said sampled listed companies and not the wider market.

McGill is chief executive of Strategic Pay and Waikato DHB is a client, so he wouldn’t speak directly to the Murray saga. But he said the SSC had the balance right.

‘‘They very much look after the taxpayers’ interest. They don’t recommend or approve large increases unless there are very, very compelling reasons.

‘‘We’re a First World country and if we want First World individuals running DHBs … we’re going to have to pay the money.’’

The debate around chief executive pay is healthy, he said, but New Zealanders tended to get ‘‘a bit excited’’.

‘‘It’s not that high compared to other countries, and I believe it represents quite well the going rate.

‘‘That’s just the market rate of pay for those roles. It doesn’t mean you’re going to get a good one or a bad one.’’

‘‘It’s not that high compared to other countries, and I believe it represents quite well the going rate.’’

John McGill remuneration consultant