CEOs’ 12% pay rise labelled ‘excessive’
TOP chief executives’ pay is back on the rise after several years of marginal growth, the Herald’s latest CEO pay survey reveals.
Executives covered by the survey got a 12% pay rise last year, taking their average earnings to $1,750,141 in the 2019 financial year. That was up from $1,561,229 for the previous year.
Leading the pack was
Fletcher Building chief executive Ross Taylor, who has been at the helm of the building company since November 2017.
Mr Taylor was paid
$5.3 million for the 2019 year, made up of a base salary of more than $2 million, a longterm incentive worth the same, a shortterm incentive of just under $1.1 million and other benefits worth $106,500.
In addition, he was given $1 million worth of company shares — ‘‘a special retention arrangement’’ — set to vest in 2022, for what the board said was recognition of the ‘‘transition the company is going through’’ and the ‘‘important part the chief executive officer plays’’.
Technically speaking, the nowdeparted CEO of the country’s largest company, Fonterra’s Theo Spierings, received the secondhighest pay out of all the executives surveyed — but that was not a full year’s salary earned in the 2019 financial year.
Mr Spierings, who finished up at the dairy cooperative in August 2018, was paid
$4.67 million — including performance pay realised in 2017, despite the company not paying out a dividend to shareholders in the 2019 financial year.
His final golden handshake dwarfed the remuneration of current CEO Miles Hurrell, who was paid $2.2 million for a year’s work. Mr Spierings’ last pay cheque from the company took his total earnings from Fonterra to $43 million.
The survey covers the top executives at the 50 biggest NZXlisted companies for which information is available.
Some property firms are excluded because their management structure makes it difficult to calculate CEO pay. Fonterra is listed because of its sheer size, and Herald publisher NZME is included in the interests of transparency.
Another departing CEO was among the top earners: former Air NZ boss Christopher Luxon, who received $4.28 million in the last year of his almost eightyear tenure at the airline. And ANZ Bank’s former chief David Hisco received $3.86 million.
But among the bosses still in charge today, casino and convention centre chief Graeme Stephens, of SkyCity, wears the crown as one of the country’s highest earners.
Mr Stephens was paid just under $4 million in the 2019 financial year, a 4.2% increase on his $3.7 million earnings recorded the previous year.
An equitybased incentive worth $1.2 million also vested for Mr Stephens in the 2019 year.
Jeffrey Greenslade, chief executive of South Islandfounded Heartland Bank, earned $2.8 million in the 2019 financial year — $1 million less than ANZ’s Hisco, despite the vast difference in the size of the two banks, though Hisco’s pay was not for a full year.
Former Spark boss Simon Moutter received $2.8 million in his final year at the company, and will receive $1.7 million in shortterm and equity incentives in 2020, but earned in the 2019 year.
Mainfreight chief Don Braid was paid $2.7 million in the year, while Fisher & Paykel Healthcare’s Lewis Gradon banked $2.6 million. Adrian Littlewood, of Auckland International Airport, pocketed $2.4 million and Genesis Energy’s Marc England
$2.3 million.
In all, 15 chief executives earned more than $2 million in the 2019 financial year, one fewer than recorded a year earlier. Another 15 earned more than $1 million but less than $2 million.
The average rise of 12% is based on the pay of executives who received a full year’s pay in both the 2018 and 2019 financial years. That increase far outstripped the pay rise received by the average Kiwi last year; according to the Labour Cost Index, that rise was 2.4%.
Chief executives from six companies — NZME, NZ Refining, NZ Exchange, Scales Corp, Summerset Group and
Vista Group — could not be included in comparisons and calculations as their reports for the 2019 financial year were not available at the time of publication.
Among those for whom information was available, the doubledigit pay rise last year bucked the trend of relatively low increases in previous years.
Chief executive remuneration increased by 2.2% between 2016 and 2017, and 3.34% between 2015 and 2016. These were the smallest increases in the 15year history of the Herald’s survey, first conducted in 2005.
In the 2010 survey, four executives earned more than $5 million. Mr Spierings topped the remuneration ranks in 2017, earning more than $8.3 million, and Former SkyCity chief Nigel Morrison in 2016, earning almost $7 million.
Ten CEOs had pay decreases in the 2019 year, though these were not necessarily salary cuts. In many cases, they did not have incentive payments payable in the year.
Richard Wagstaff, president of the New Zealand Council of Trade Unions, said the
$1.75 million average pay for the surveyed executives last year was ‘‘excessive’’, but reflected a growing global trend towards ‘‘higherpaid people getting more than their fair share’’.
He said organisations rarely gave their staff a doubledigit percentage pay increase, and he believed such rises were not justified for CEOs.
‘‘These very same people who are claiming and accepting these kinds of pay rises are denying their own staff the same pay rise.
‘‘Chief executives pay themselves a lot more than they are rewarding their staff. It is inherently unfair — an organisation’s performance is a result of all of the staff, not just one of the staff members,’’ Mr Wagstaff said.
‘‘Across New Zealand last year there were some encouraging results when it came to rising pay for working people: we had the highest pay rises in over a decade, and we saw the share of the economy going to workers improving after over a decade of decline.
‘‘A lot of the pay rises that went to people were the result of union agreements . . . but for people outside of unions, your survey demonstrates that still, for many workers, their pay is going nowhere and it is going nowhere while their bosses’ is improving.’’
Mr Wagstaff believed incentive pay for executives was unnecessary, and abolishing it would bring CEO remuneration down to reasonable rates.
‘‘Incentive pay can produce perverse outcomes and we saw that over the global financial crisis, where highpaid executives were pursuing very narrow incentives to receive pay rises regardless of the consequences for the wider economy.’’
Incentives also suggested that there was ‘‘a problem with motivation’’, he said.
‘‘You have to wonder why these people need an incentive to get out of bed and give 100% to their jobs — they shouldn’t need additional financial incentives to put in the required effort.’’
Some company boards were already considering abolishing shortterm incentives, out of fear they could be a ‘‘distraction’’ from longer term results, John McGill, chief executive of executive remuneration consultancy Strategic Pay, told the Herald.
‘‘I’m seeing more interest with boards around the longer term incentive pay as distinct from the shorter term. I’ve had a few board members make comments generally in the last year around getting rid of the shortterm incentive pay; they are more interested in the longer term,’’ Mr McGill said.
‘‘Stakeholders’ interests are often longer term, so to have [just] the longer term remuneration is probably a good thing.’’
He agreed some executive pay packets were steep, given the level of effort needed to lead some companies.
‘‘A lot of the very big public service jobs, you can argue that they are relatively lowly paid. The heads of DHBs, the bigger ones, they’re responsible for well over $1 billion, these are very large organisations yet their pay is relatively low compared to those in the private sector — and there’s usually no incentive pay.’’
Compared with pay packets overseas, remuneration for New Zealand executives was low for samesized jobs, but packages needed to be competitive to attract the right talent, Mr McGill said.
Pay packets for some were higher as a way of acknowledging any reputational risk associated with moving from one company to another, he said. ‘‘The issues from the individual point of view is that there is risk for them. If you’ve got to a position where you are very senior in a large organisation, often, I think the rest of us forget it is seriously high risk.’’
❛ Chief executives pay themselves a lot more than they are rewarding their staff. It is inherently unfair —an organisation’s performance is a result of all of the staff, not just one of the staff members New Zealand Council of Trade Unions president Richard Wagstaff
INCOMING Air New Zealand CEO Greg Foran officially starts on Monday — after weeks of burying himself in the business and learning about an industry that is brand new to him.
The retail veteran moves into the top floor at the airline’s headquarters in Auckland’s Fanshawe St just as the airline industry faces its latest big threat — coronavirus, or 2019nCoV. It is a danger which could have grave consequences for the airline industry if it becomes a fullblown global pandemic.
The industry has been here before over the past 17 years, and the Sars epidemic of 2003 was the most lethal and economically destructive for airlines. But airlines that are in good financial shape when a crisis hits — and those crises can take many forms — bounce back relatively quickly.
Mr Foran is moving into a company that has had a stable investmentgrade credit rating for years, has been in superprofit territory recently and has extremely capable senior executive and operational teams used to dealing with the unexpected.
Unlike his two immediate predecessors, the former Walmart US boss is a complete newcomer to airlines.
While Christopher Luxon had forged a big career at Unilever in North America, he had for a year headed Air New Zealand’s international airline. He succeeded Rob Fyfe, a former Air Force engineer who had rapidly risen through the airline’s executive ranks to take the top job.
Mr Foran’s career has been well documented, but just what he has gleaned from ‘‘looking inside the cowling’’ over the past month will have to wait to be publicly revealed .
There have been signals the 58yearold is not keen on doing the usual round of media interviews and that was confirmed by a note from the airline’s communications team, which said: ‘‘Greg will be settling into the business for the first few months and won’t be carrying out any media interviews during this time.’’
He will be present at announcements, including an interim result on February 27 and upcoming 80th anniversary events, but for now Mr Foran is avoiding the limelight and digging deeper into the business.
To climb to the top of the corporate ladder in the US, he is likely to be a workaholic. And in preparation for his new job, he has been asking for what is bound to be a deluge of feedback from 1200 airline leaders.
That is to help him form a view on where the airline can improve and, crucially, where it goes next. That will be revealed near the start of the next financial year.
Over the past month, he has been at the airline’s head office or operations bases about three days a week — this before being officially on the payroll. Mr Foran’s pay package has not yet been disclosed, but will be substantially less than the $21 million a year he reportedly received for managing the 46,000 Walmart and associate stores, which employed one million staff.
He has apparently been in touch with former chief executives, including Sir Ralph Norris, who steadied the ship after nearcollapse in 2001. And he has met or is about to meet unions, one leader having reported back ‘‘favourably’’.
An airline insider says Mr Foran has also visited uniformed staff at Auckland and Christchurch airports, spending time with the backofhouse ground staff at both airports and learning as much as he can, from baggage handling to loading, flying a sector with pilots and meeting cabin crew.
At Walmart, Mr Foran had a reputation for getting on the shop floor as often as possible — the story goes that he sometimes jetted in without warning on one of the company’s private jets.
Mr Fyfe pioneered the push to get executives mucking in on various parts of the business on a regular basis and that approach is back in what has been described as a ‘‘sea change’’ over the past two months.
Airline chairwoman Dame Therese Walsh is a handson leader and has worked with cabin crew on a recent AucklandHawaii flight and a WellingtonAuckland leg. She has told the Herald previously she wants her fellow board members to get out and about in the airline and that leadership style matches Mr Foran’s approach.
He has been furthering his Maori language skills with coaching from the airline’s cultural development manager Henare Johnson and was at last weekend’s kapa haka festival in Auckland supporting the airline’s team.
In a video released when he was announced as chief executive last October, Mr Foran talked a lot about the sustainability push. In an era of flight shaming that is crucial and he has already signed up to the airline’s 2000strong Green Team.
A former colleague who observed Mr Foran’s ‘‘legendary’’ leadership style says he is not surprised at the glittering CV he has built up.
‘‘He was a bit of a legend, to be honest. He was an exceptional leader at the time and from everything I’ve heard continued to improve,’’ said Tourism Holdings chief executive Grant Webster, who used to work with Mr Foran at Woolworths NZ.
‘‘He had that fascinating ability to listen, to add and to provide inspiration and direction all at the same time — you walked away from any conversation or presentation feeling you had learned something, been listened to and been motivated,’’ Mr Webster said.
But among the airline’s 12,500 staff, the survey and the staff meetandgreet to date have been described as too limited by some workers, who wish to remain anonymous.
‘‘They are wary of the new chief executive,’’ one critic said.
‘‘They believe that Christopher Luxon made too many cuts to increase the returns on investor capital [and] they believe that due to the cost cutting, Air New Zealand is no longer a fivestar airline and they don’t wish to be a ‘Walmart of the Sky’.’’
However, among workers there is hope for future direct engagement with Mr Foran.
‘‘Management filtering of issues upwards has long been an issue in workplaces.’’
Pilots say they are looking forward to working with him and finding out what his plans are.
‘‘I understand he has already been spending time meeting Air New Zealand staff around the country — including some of our pilots — and the feedback has been positive,’’ NZ Air Line Pilots Association president Andrew Ridling said.
Dame Therese said she expected Mr Foran to seek input from all of the workforce, beyond the 1200 leaders he had already sought feedback from. She also expected he would seek feedback from a range of customers.
Next week he will begin a 100day strategic review with the board.
‘‘We expect to go into the August annual result period able to articulate the aspirations for the airline in this next exciting phase,’’ Dame Therese said.
About 200 staff will formally welcome him with a powhiri at Te Manukanuka o Hoturoa marae near Auckland airport on Monday. — The New Zealand Herald