$2m ex­ec­u­tive club

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? Rob Stock and Andy Fy­ers re­port.

The Timaru Herald - - $ -

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 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 $2m Club chief ex­ec­u­tives get from 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 non­cash’’ ben­e­fits. Only Braid and Fon­terra’s for­mer chief ex­ec­u­tive Theo Spier­ings had base salaries of $2m or more.

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 long-term 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 per­for­mance­based pay are the largest, but not the only parts of top ech­e­lon to­tal re­mu­ner­a­tion pack­ages.

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.

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, star­ing 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.

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

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.

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 fi­nan­cial year 2017. 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.

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.

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.

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 which 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 which meets the mar­ket for those skills.’’

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 firm. She can’t un­der­stand how share­hold­ers seem happy to pay a chief ex­ec­u­tive so much, while be­ing con­tent to pay other work­ers much less.

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

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 to get op­tions, and the chance to buy shares at dis­counted prices. That was com­mon prac­tice among the New Zealand sub­sidiaries of multi-na­tional com­pa­nies, he said.

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

Main­freight’s Don Braid is paid a base salary of $2m with a dis­cre­tionary per­for­mance bonus of nearly $560,000.

Air NZ chief ex­ec­u­tive Christo­pher Luxon.

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