Chief executives at New Zealand's biggest companies got a pay rise of 3.3 per cent last year - the lowest increase since 2011.
The Business Herald's annual CEO pay survey reveals that chief executive pay for the 2016 financial year averaged $1,732,802, up 3.34 per cent from $1,676,757 the previous year. In the survey's 12-year history, the lowest CEO pay increase was recorded at just 0.4 per cent in 2011.
The latest 3.3 per cent rise follows two years of double-digit increases - 12 per cent in the year to 2015 and 10 per cent in 2014 - and is more in line with the average worker's pay rise - though in dollar terms, it's still an extra $56,000.
The survey covers 49 of the biggest listed companies, plus non-listed Fonterra, because of its size. Herald owner NZME is added to the survey, for the sake of transparency.
The economy is growing, the sharemarket is on a golden run and 49 of the 51 companies made a profit in the year, so why wasn't that reflected in executive pay in 2016?
John McGill, chief executive of executive remuneration firm Strategic Pay, says the "relatively modest" increase could be attributed to CEO performance incentives not yet vested.
"There's no doubt that executive pay has been increasing for many years, at a faster rate than for other groups, and our analysis suggests that that's not really changing, particularly around the nature of incentive schemes," McGill says.
Departed Sky City boss Nigel Morrison was the highest paid executive in the survey. Morrison, who stepped down in April last year, received $6.49 million. His annual remuneration tallied $3.7m, but that was bumped up by an annual leave payout of $96,000, $2.3m in resignation entitlements and $363,000 in dividends.
Fletcher Building's Mark Adamson was the second highest paid executive last year. He got $4.72m, according to Fletcher Building's annual report, up about 17 per cent from the previous year. However, it is unclear how much of that he actually banked, given his subsequent resignation.
Fonterra chief Theo Spierings followed closely in third place in the latest survey, receiving $4.66m in the year to 2016, down 5 per cent from the previous year, when he topped the executive pay stakes. Spierings opted for a voluntary pay freeze for the 2015-16 year.
ANZ New Zealand boss David Hisco was the fourth highest earner, on more than $4.3m, followed by Air New Zealand chief executive Christopher Luxon, getting just over $4m.
Synlait's John Penno, Xero's Rod Drury and Argosy Property's Peter Mence were at the bottom of the list, each getting less than $1m.
Chief executive salaries have been on the rise over the past five years, at rates well above increases received by the average worker.
The quarterly employment survey for June last year put average private-sector weekly earnings, including overtime, at $1072, up 2.2 per cent on June 2015.
Large movements in CEO remuneration can often be attributed to incentive payout dates, says McGill.
Executive salaries are made up of fixed remuneration and incentive schemes. Some of those incentives are paid on an annual basis, while others are paid only after certain performance targets and timeframes are met.
Incentive pay can be 30 per cent or more of base salaries, but there are two sides to these rewards, notes McGill, with Fletcher Building providing a recent example.
Former chief executive Adamson resigned last month following profit downgrades, and on departure, he would have forfeited incentives, McGill says.
Strategic Pay's own research, which covers 470 companies, showed pay rises were similar to the 3.2 per cent in the Herald survey.
McGill says the emphasis on incentive pay has grown in recent years.
"A lot more focus has been put on incentive pay, especially given much broader shareholder interest in ensuring that key performance indicators - and the reason why those payments are being made - is very clear and very tight. Financial performance is the bottom line with a lot of incentive schemes."
Some researchers, however, are sceptical about the relationship between executive pay and performance.
Australian expat James Sleigh, a partner at executive search firm Seqel Partners, says he has noticed that the New Zealand market puts less emphasis on annual base salary hikes and a greater emphasis on creating value for shareholders.
"If you look at the Australian market, some of the increases to attract talent into the big roles puts emphasis on base salaries; that's not the case here. There's much more backhand loading based on performance."
Sleigh says he has also noticed a rise in the number of Kiwis now running top companies.
"It seems like a lot of the CEOs here, appointed in New Zealand companies, are Kiwis again. There's been less of 'let's bring in the talent from overseas' speech, and a number of people who are going into these roles are Kiwis that have international experience and are returning home."
There's no doubt that executive pay has been increasing for many years, at a faster rate than for other groups, and our analysis suggests that that's not really changing, particularly around the nature of incentive schemes.
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Simon Monks, managing partner of Caldwell Partners, has seen the same trend.
"The last couple of years has been good for New Zealand business," says Monks. "If you look at the way the economy is performing, and when you look around the world - and this is part of the reason why New Zealand executives are returning - it isn't a bad place to be."
Mark Ashcroft, partner at executive search firm Seqel Partners, says an uncertain world is encouraging some New Zealand executives to come home, but "the reality of the income in this part of the world is very, very low compared to Australia, which is significantly lower, and compared to Asia and the US, is significantly lower again."
"Chief executives are well-paid in New Zealand, there's no doubt about that, relative to the general wage, but if you compare that to what we pay our sporting stars, our cultural stars, and you look at the work required in terms of work ethic and commitment required to be a top CEO, and all the risks around reputational risk, health and safety risk, they take on a lot of risk and a lot of activity for often a relatively modest return," he says.
"It seems like a lot to someone who is earning $50,000 a year in a call centre, but it's a big difference in responsibilities."
Monks points to the success of companies such as Air New Zealand, Fisher & Paykel Healthcare and Mainfreight.
"These are quintessential New Zealand companies run by quintessential New Zealand leaders, who have taken New Zealand to the world. I can't see why we can't have more of that, and we should be celebrating that," he says.
He doesn't accept the thinking that top jobs always have to go offshore.
"Part of the remuneration issue is because we're paying international executives more than we would have had to, had we recruited New Zealanders. That doesn't mean that we should recruit New Zealand executives at a discount, but sometimes I think the premium that we're paying international executives is not justified."
While CEO pay packets have to be attractive and in line with those paid offshore, it's hard to strike the right balance, says John Hawkins, chairman of the NZ Shareholders Association.
"Many of the pay packages of CEOs are either overly generous or the requirements around earning short-term and long-term incentives can be overly soft," he says.
"It's a tradeoff in that directors feel that they want to get the best person and they want to reward them for performance, but there's no evidence whatsoever that higher pay generates higher performance. In fact, all the statistics show that it is completely random.
"One of the reasons why we encourage internal promotion is, again, statistics show it tends to give the best outcomes, but there are some limited number of companies that the nature of the business is quite hard to have a pool of people in a small economy like New Zealand that can fill that role.
"In many cases, imports from overseas have not performed particularly well," says Hawkins, citing The Warehouse as an example.
My American colleagues have always said that the first result of increased transparency - and there have been a lot of moves in the US on this - is that pay goes up more than we would otherwise expect.
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"There's a bit of an element of 'me too', where salaries around CEOs are going up, and the pressure comes on boards to perhaps give some soft short-term incentives to make sure that their CEOs keep up with the pack," he says.
"That's foolish because by definition, if we have average or median incomes for CEOs, half of them will be above and half of them will be below, but it seems like no one wants to be below. That leads to the question: are short-term incentives too high and are the long-term incentives weighted too low?"
Annual CEO pay increases should not be significant, Hawkins says.
"It's important that you reward good performance, appropriately. It's equally important that you don't over reward performance that is sub-par ... Typically, you'd expect base salaries to move roughly in line with inflation, perhaps a little more if the company is doing well, but typically not far removed from inflation - two or three per cent at what a base salary norm would be."
CEO remuneration isn't as clear-cut as it might appear.
Most of the company annual reports used for the survey broke CEO pay into the categories of base salary, short-term incentives, long-term incentives, superannuation, and sometimes gave a dollar value on shares awarded. However, the methodology varied, and some companies don't provide any breakdown.
For companies that did not specify CEO pay, the highest paid employee included in pay bands above $100,000 was assumed to be the chief executive. Not all long-term incentives vested in the 2016 financial, so not all were included in remuneration totals.
From October, listed companies will be obliged to comply with the NZX Corporate Code of Governance, requiring executives' and directors' pay to be transparent, fair, and reported reasonably in annual reports, bringing New Zealand into line with Australia.
"What we'd like to see is consistency," says Hawkins. "We want a two-page consistent, simple type of transparency, and I think we will get that over time."
McGill: "My American colleagues have always said that the first result of increased transparency - and there have been a lot of moves in the US on this - is that pay goes up more than we would otherwise expect."