CEOs reap rewards even if results poor

By Owen Hembry

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Chief executives who missed all their targets last year still received performance pay, according to human resources consultancy firm Sheffield.

The company's annual chief executive survey found the proportion of chief executives who failed to achieve all their targets in 2007 increased.

Those who missed all targets fell from 21 per cent to 10 per cent but still received three-quarters of targeted performance pay.

Sheffield reward manager Jarrod Moyle said: "This is of real concern.

"It could signal that the performance-pay system is not robust and underperforming CEOs are still being paid bonuses."

The company's annual chief executive survey found that the incidence of performance pay was 65 per cent in 2007, up from 56 per cent the previous year.

Moyle said the incidence of performance pay had declined or plateaued since 2002-03. It had been an alarming trend, he said.

"When the rest of the world is increasing both the amount and the incidence of performance pay New Zealand was decreasing," he said.

"It's [the 2007 increase] a positive indicator that New Zealand organisations are aligning with international norms, though there's still a long way to go." In the United States about 90 per cent of firms had a performance pay plan for the chief executive.

The average amount of pay at risk for a chief executive in New Zealand was 16 per cent, compared with 39 per cent globally.

"That has to be an issue, given our nation's comparatively low level of productivity," Moyle said.

"Linking pay more closely to longer-term performance objectives has great potential to contribute to solving this productivity problem."

A median rise in chief executive base salaries of 5 per cent was ahead of inflation, with public and private sectors up by about 5.7 per cent and 4.6 per cent respectively.

The median total pay package in the public sector was $285,000, compared with $258,000 in the private sector. The public sector had become an attractive option, Moyle said.

The total package for Auckland chief executives was $324,000 in 2007, up from $298,000 the previous year, with Wellington chief executives on $305,000, up from $285,000 and Christchurch with a median of $240,000.

The survey included data from 501 chief executives, managing directors and general managers nationwide.


* More use of performance-based pay.

* Underachievers get three-quarters of performance pay.

* Primary sector median total package: $426,000.

* Transport sector median total package: $355,000.

* Engineering/contracting median total package: $350,000.

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