Where is the proof that paying top dollar is a winning strategy?

AMID the sea of chintzy consumer goods and wasteful packaging that characterises The Warehouse, one cannot help thinking there is, at least, a decent human being at the helm.

Chief executive Mark Powell has dared say what many others must surely think, but few are prepared to publicly utter: that executive pay is well into the realm of the ridiculous.

Nothing new in the sentiment, but to have a man of his stature prepared to say it from first-hand experience suggests someone who is, at the least, still in touch with his workforce. A workforce that has itself managed to secure a more comfortable "Career Retailer Wage" - all under Powell's stewardship.

Top-line financials don't appear to have plummeted in the wake of paying staff more - Red Shed sales for the first half of the year grew by 6.2 per cent, or $53.5 million, to $920.1 million over the same time last year.


To my mind, Mark Powell is not exorbitantly paid anyway, when you consider that some CEOs in this country get multiples of his $1.7 million, without having to battle the low-margin, cut-throat environment that is mass retailing.

It is often said that one reason for paying executives so lavishly is that they come from a global talent pool, and we are vying with the rest of the world for the cream of that pool. Where is the evidence that this is a winning strategy - apart from in the minds of management consultants? Mark Powell, a Welshman, chose to come here and make his mark on New Zealand business without the inducement of millions, to offer just one contrary example.

Maybe it's a sign of the times that if most CEOs won't admit something is drastically wrong, governments will. The New Zealand-born banker who heads the Royal Bank of Scotland in Britain, for example, has been told that no, he can't pay his bankers as much as 200 per cent of their salaries in bonuses - especially after the bank had to be bailed out by the taxpayer to the tune of £46 billion ($90 billion) in 2008.

In the US, executive pay-curbing moves are being debated. A bill put forward in California, for example, would result in companies paying higher tax if their CEO gets more than 100 times the median wage of workers.

Other ideas are coming from people across the US political divide. One would require public companies to disclose the ratio between CEO remuneration and the median pay of the rest of the employees. That way, for example, investors could see that retailer JC Penney, according to Bloomberg, pays its CEO 1795 times the amount received by its average worker (US$53.3 million vs US$29,688), or that Starbucks pays CEO Howard Schultz US$28.9 million, 1135 times as much as his average worker.

The ratios may shock the public, but they are really intended for investors, who it is hoped will be able to judge the acumen of companies by comparing performance with pay ratios and seeing if there is, indeed, that elusive correlation.

In New Zealand, we don't have proof of that link, and continue to hear that we need to offer lush pay packets to attract the best in the world.

It's pleasing to see that one CEO, at least, can see the faulty reasoning in that argument.