Liam Dann: Top dollar's fine, if you work for it

Most of us would be pretty happy with a three per cent pay rise. The average worker got closer to two per cent last year.

But if that three per cent was based on a salary of, say, $1.74 million, it would look even better.

That's the average pay packet in this year's Business Herald chief executive pay survey. The average rise was 3.4 per cent, an increase of about $56,000 for our top bosses - more than many hardworking Kiwis earn in total annual pay.

Averages are hypothetical, of course. Bonuses make executive pay pretty lumpy.

Some bosses saw their total pay packet drop and plenty of others got much bigger rises. But however you cut it, they earned big bucks.

That makes some people very mad.

Big corporate salaries seem to wind people up more than the big money earned by entertainers, sports stars or entrepreneurs who build their own businesses.

I think the distinctions about what people do to make big money are pretty arbitrary.

This week Forbes magazine published its list of the world's highest-earning DJs.

Calvin Harris topped the list on US$48.5m. That seems like a lot for an entertainer who can't even play a guitar.

The pool parties in Ibiza must be tiring but let's face it he's not being paid for hard work. He's being paid for creativity and because there is a massive demand for the sounds he can make.

I've never been bothered by the idea of big numbers being attached to individuals - at least when it's not taxpayer money.

I don't begrudge Lorde or Lydia Ko their annual earnings. I don't begrudge our corporate leaders, either - as long as their elite pay packets are matched by elite performance.

But there should be very little room for failure at this level.

A high level of expectation around performance should be built in by a tight supply and demand dynamic.

It is important that there is enough supply-side pressure.

The value of elite sports stars - although open for debate - is laid brutally bare on the football field or cricket pitch.

Coaches and captains regularly fall on their swords when performances aren't up to scratch.

If a pop star can't produce a catchy tune countless others are waiting to grab a spot in the top 10.

But without transparency, complacency can kick in. That's an ever-present risk in the business world - particularly for shareholders of listed companies.

Boards and shareholders need to stay very focused on the value that chief executives are adding to their organisations.

There are legitimate reasons for poor results - unusual events, one-offs and some industries face difficult structural issues, that are often inherited.

The total lack of representation at the top suggests there are still structural forces limiting women's ability to hit the top job.

These issues need to be factored into our assessment of chief executives but they can't be allowed to hide poor performance.

There's no room for highly paid sports stars to hide on the field. There shouldn't be any room for the leaders of publicly listed companies either.

A couple of things stick out in this year's survey that should give the shareholders of pause for thought.

One is the gender imbalance. There are no women on the list. None!

Chorus CEO Kate McKenzie's is the only female leading an NZX-50 company but she is new and so her pay won't be publicly reported for another year.

You don't have to spend much time engaged with the local corporate scene to notice an amazing pool of talented females working at a senior executive level.

But the total lack of representation at the top suggests there are still structural forces limiting women's ability to hit the top job.

If so that must have a detrimental effect on the supply dynamic and the competitive pressure on the men in those roles.

The other issue is the rate of pay rises.

I've been covering executive pay since we dubbed Craig Norgate New Zealand's first million dollar man when he became Fonterra chief in 2001.

If we adjust our way up by inflation over 16 years, the Reserve Bank's calculator tells us our top paid executive should be earning about $1.5m now.

But the top of the pay scale is closer to $5m.

Recently departed Fletcher Building chief executive Mark Adamson topped the list with $4.7m in 2016. Only Sky City boss Nigel Morrison earned more - but his $6.4m included a leaving payout.

Adamson's pay rose by 17 per cent.

Fletcher Building and Adamson had a pretty good run in the year to June 30, 2016.

But things have unravelled badly in the past eight months. So much so that Adamson departed abruptly last month amid a great deal of shareholder anger over profit write-downs. The company has lost nearly $2 billion in market value.

Fletcher Building has an interim chief in place and the company is still functioning. The cranes are still swinging on the SkyCity Convention centre.

It's a reminder top chief executives need to be doing more than keeping well established businesses ticking over.

In a market stacked with solid dividend stocks, it's possible we could make do with mere competence. But it's hard to see why competence should be treated as such a scarce commodity.

To justify the kind of salaries on the pay survey, shareholders have a right to expect exceptional standards of leadership and vision.

Click here to see the full survey findings.

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