SKY’S THE LIMIT

A small group of Kiwi chief ex­ec­u­tives are earn­ing up to 80 times the av­er­age an­nual in­come in New Zealand. But who are they, what do they do? And, are they worth it, ask Rob Stock and Andy Fy­ers.

The Dominion Post - - News -

For 15 members of New Zealand’s $2 mil­lion chief ex­ec­u­tive club, there’s no hid­ing their mas­sive in­comes. To be a chief ex­ec­u­tive paid $2m or more means you work for a com­pany, or or­gan­i­sa­tion, that pub­lishes an­nual re­ports and has to ac­count for your pay, bonuses, and perks in a form that any­one can read.

‘‘They hate it,’’ says John McGill, from Strate­gic Pay, which tracks ex­ec­u­tive pay.

But they love it too. McGill reck­ons chief ex­ec­u­tives in the top ech­e­lon keep a close eye on their ri­vals’ pay, and know their ri­vals are look­ing en­vi­ously. And rule changes by the NZX share­mar­ket have been driv­ing trans­parency.

SkyCity, among the most trans­par­ent when it comes to chief ex­ec­u­tive pay, is a case in point. Even chief ex­ec­u­tive Graeme Stephens’ em­ploy­ment agree­ment is avail­able on­line.

Stephens is one of the $2m chief ex­ec­u­tives, an in­ter­na­tional re­cruit SkyCity hired af­ter a global search to rein­vig­o­rate the casino and en­ter­tain­ment com­pany. His total re­mu­ner­a­tion for the 12 months to the end of June was $3.76m, but that’s a fig­ure that in­cludes both money paid to him and in­cen­tives that have ac­crued to him, in­clud­ing shares, but that he gets later, if the com­pany per­forms well.

There’s even a pie chart in the SkyCity an­nual re­port show­ing the split be­tween his ac­tual base salary (39 per cent) at $1.45m, and the short-term in­cen­tives

(27 per cent), and long-term in­cen­tives (34 per cent) he earned dur­ing the year.

The amount that $2m club chief ex­ec­u­tives get from their base salary varies mas­sively.

Don Braid, from Main­freight, (who, when ques­tioned about his salary com­mented, ‘‘Who gives a . . . . what the re­mu­ner­a­tion is? It’s all about per­for­mance’’) was paid a base salary of $2m, with a dis­cre­tionary per­for­mance bonus of $558,867.

He also got $78,000 in ve­hi­cle and ‘‘other non-cash’’ ben­e­fits. Only Braid and Fon­terra’s for­mer chief ex­ec­u­tive Theo Spier­ings had base salaries of $2m or more.

PER­FOR­MANCE-BASED PAY

In­cen­tives can mean chief ex­ec­u­tive pay can jump around. West­pac’s New Zealand chief ex­ec­u­tive David McLean had total re­alised re­mu­ner­a­tion in 2018 of A$1.769m (NZ$1.89m). He would have com­fort­ably been in the $2m club, ex­cept that he ‘‘for­feited’’ A$988,873 (NZ$1.05m) in longterm in­cen­tives from last year.

An­other to fall just short of the $2m club is John Fel­let, from Sky TV, who made $1.975m, 29 per cent of which was based on Sky hit­ting per­for­mance tar­gets.

Base salary and per­for­mance-based pay are the largest, but not the only, parts of top ech­e­lon total re­mu­ner­a­tion pack­ages.

SUPER PERKS

Like the less well-paid, the $2m club men and women put money into super funds.

This is usu­ally tagged as part of the ‘‘other ben­e­fits’’ flagged in an­nual re­ports. So trans­par­ent is the SkyCity an­nual re­port, that we know Stephens’ Ki­wiSaver con­tri­bu­tion by his em­ployer was $43,500.

At the end of March, the av­er­age Ki­wiSaver bal­ance was just $17,130.

Ross Tay­lor, chief ex­ec­u­tive of Fletcher Build­ing, brought in af­ter an in­ter­na­tional search to turn the trou­bled com­pany around, has been in place since Novem­ber 22, 2017. In the pe­riod from then to the end of June (the date of Fletcher’s last an­nual re­port) he was paid $45,917 in ‘‘other ben­e­fits’’ in­clud­ing health in­sur­ance and re­lo­ca­tion costs. When you are pay­ing a chief ex­ec­u­tive more than $3m a year, ev­ery day off sick, ill, or in­ca­pac­i­tated is a costly disas­ter.

NO BOYS’ CLUB

There are four women in the $2m club, and they’re not among the lowli­est paid of the huge earn­ers.

Vit­to­ria Shortt joined ASB as chief ex­ec­u­tive in Fe­bru­ary from its par­ent CBA in Aus­tralia, where she was firmly in the $2m club. CBA’s lat­est an­nual re­port shows her total re­mu­ner­a­tion in the 12 months to the end of June was A$2.7m (NZ$2.88m).

BNZ chief ex­ec­u­tive An­gela Men­tis made a sim­i­lar move to New Zealand, from her bank’s Aus­tralian par­ent com­pany, start­ing her new job on Jan­uary 1. She re­ceived total re­mu­ner­a­tion of A$3.01m (NZ$3.21m) in the 12 months to the end of June. The other two women in the $2m club are Jayne Hrdlicka, of A2, who joined from Jet­star, and Kate McKen­zie, of Cho­rus, the telecom­mu­ni­ca­tions in­fra­struc­ture com­pany.

TIME OFF

Em­ploy­ment pack­ages are about more than money. One of the ben­e­fits that ex­ec­u­tives of­ten ask for is an ex­tra week of an­nual leave, said Kather­ine Swan, coun­try direc­tor for re­cruit­ment agency Rand­stad.

Hrdlicka, for ex­am­ple, ne­go­ti­ated an ex­tra week of an­nual leave when she joined A2. An­other com­mon ben­e­fit is an ed­u­ca­tion ben­e­fit, pay­ing for chief ex­ec­u­tives to keep train­ing while in the job. This can in­clude pro­fes­sional as­so­ci­a­tion fees. Strate­gic Pay found gym mem­ber­ships and air­line lounge fees were also com­mon.

Hrdlicka looks to be a front-run­ner to be this year’s top-paid chief ex­ec­u­tive in New Zealand. She joined A2 in July, and in Septem­ber sold $4.36m of shares she had been granted in the com­pany, re­port­ing that it was to fund ‘‘tax obli­ga­tions’’, but it dis­pleased in­vestors, and the com­pany’s share price dipped sharply.

TOP OF THE TOP

Air New Zealand chief ex­ec­u­tive Christo­pher Luxon was the high­est paid chief ex­ec­u­tive dur­ing the last fi­nan­cial year. He pock­eted more than $4m in the year to June 30.

Hrdlicka and Luxon take over from depart­ing Fon­terra chief ex­ec­u­tive Theo Spier­ings, who took home more than $8m in the 2017 fi­nan­cial year. Spier­ings earned a much re­duced $3.5m in his fi­nal year in charge of Fon­terra, in­clud­ing a base salary of $2.46m. But his pay was topped by per­for­mance pay­ments held over from 2016 and 2017 of $1.83m and $3.85m, tak­ing the total to just over $8m.

Fon­terra, New Zealand’s big­gest com­pany, has vowed to pay new chief ex­ec­u­tive Miles Hur­rell ‘‘sub­stan­tially less’’ than Spier­ings. Hur­rell’s first job was to cre­ate a turn-around plan for Fon­terra, which has dis­ap­pointed farm­ers.

Hrdlicka pock­et­ing so much af­ter such a short time draws at­ten­tion to the ex­treme dif­fer­ences be­tween the pay pack­ets of lead­ers, and the peo­ple who work un­der them. For the very top ex­ec­u­tives, those in the $2m club, the ra­tio is more like 40 to 80 times the av­er­age Kiwi’s an­nual in­come of $50,000 and in the case of Spier­ings in the 2017 fi­nan­cial year, it’s more like 160 times.

‘‘Mr Stephens’ base salary re­mu­ner­a­tion ra­tio to the me­dian an­nu­alised em­ployee base salary is 29 to 1,’’ the SkyCity an­nual re­port says. That’s just his base salary, not in­clud­ing the 61 per cent linked to per­for­mance.

YOU CAN’T EARN $2M A YEAR

Are they worth it? Opin­ions dif­fer. There’s a very weak re­la­tion­ship be­tween pay and per­for­mance, says econ­o­mist Bill Rosen­berg, from the Coun­cil of Trade Unions.

Chief ex­ec­u­tives with large pay pack­ets lead com­pa­nies that thrive, and chief ex­ec­u­tives with large pay pack­ets lead com­pa­nies that stuff things up roy­ally.

Tay­lor’s Fletcher Build­ing pre­de­ces­sor Mark Adam­son, who left the com­pany in July 2017, was paid $2.936m in his last 12 months with the com­pany.

An im­por­tant el­e­ment that un­teth­ered chief ex­ec­u­tive pay from that of or­di­nary work­ers was the 1980s and 1990s re­cast­ing of the chief ex­ec­u­tive as a super-be­ing, able to move seam­lessly from in­dus­try to in­dus­try. Once the cult took hold, the rel­a­tiv­i­ties of a chief ex­ec­u­tive’s pay were no longer tied to the eco­nomics of an in­dus­try, or the other peo­ple work­ing in it.

YES YOU CAN

Rob Camp­bell, chair­man of SkyCity, dis­agrees. ‘‘A re­ally ex­cel­lent chief ex­ec­u­tive can make an enor­mous dif­fer­ence to com­pany per­for­mance. But they do not do this on their own,’’ he says.

‘‘Mod­ern cor­po­rate lead­er­ship re­quires spe­cial ca­pa­bil­i­ties in un­der­stand­ing the mar­ket en­vi­ron­ment and the var­i­ous in­ter­ests that im­pact on the busi­ness; iden­ti­fy­ing and cre­at­ing the struc­tures within which peo­ple and their skills can best be used; draw­ing on and bring­ing to­gether the ca­pa­bil­i­ties avail­able to the busi­ness to de­fine and ex­e­cute a strat­egy; and ar­tic­u­lat­ing clearly what is be­ing done to all stake­hold­ers.

‘‘If you have some­one who is do­ing that, lead­ing in that way, then you will need to pay at a level that meets the mar­ket for those skills.’’

WILL ANY­THING CHANGE?

First Union’s Tali Wil­liams lob­bies for law changes to set a max­i­mum ra­tio of chief ex­ec­u­tive pay to the pay of the low­est paid work­ers in a com­pany. She can’t un­der­stand how share­hold­ers seem happy to pay a chief ex­ec­u­tive so much, while be­ing con­tent to pay other work­ers so much less.

‘‘It’s frus­trat­ing,’’ Wil­liams says. ‘‘Why don’t they see value in the peo­ple on the front line, the ones who are ac­tu­ally deal­ing with cus­tomers?’’

Gov­ern­ments in New Zealand have not seen their role as cap­ping top lev­els of pay, but leg­is­lat­ing a min­i­mum floor for work­ers. And yet, more of us should have pay pack­ets that have more in com­mon with chief ex­ec­u­tives, McGill be­lieves.

He’d like to see far more employees from the ranks be­low chief ex­ec­u­tive level get op­tions, and the chance to buy shares at dis­counted prices. It was com­mon prac­tice among the New Zealand sub­sidiaries of multi­na­tional com­pa­nies, he said.

Some listed com­pa­nies do that, such as Ports of Tau­ranga.

Big pay pack­ets bring in­tense scru­tiny. Fon­terra chief ex­ec­u­tive Theo Spier­ings’ pay rise in 2015 brought ridicule and dis­be­lief, and at­tracted the at­ten­tion of car­toon­ist Sharon Mur­doch.

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