$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.
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.