KEY POINTS:
Lean and hungry economic days are upon us but there is no appetite in big business for New Zealand blue-chip company chief executives to swallow pay cuts as their colleague John Bongard has at Fisher&Paykel Appliances.
The chief executive of the whiteware brand is taking an $85,000 cut to his $1.1 million pay packet in an unprecedented corporate move as F&P Appliances grapples with falling international sales and soaring debt in the global economic downturn.
Air New Zealand and Telecom have frozen executive salaries as they try to manage costs. Air New Zealand's chief executive Rob Fyfe is understood to be on $1.6 million a year and Telecom's Paul Reynolds' total package is $4.79 million.
But even after a string of grim half-year results for listed companies this week, the Herald on Sunday found other big corporates had no taste for cutting or freezing the pay of chief executives.
And business experts can see no good reason for chief executives to have their pay docked or frozen if their company's performance does not call for it. They say a widespread pay cut "gesture" would deepen negative market sentiment. There is also a high risk of losing good chief executives to Australia, they say.
Listed Auckland International Airport posted a nearly 80 per cent dive in its half-year profits on Thursday as a result of a values slump in its property portfolio. But earlier in the week chief executive Simon Moutter said: "Our recent results don't really put us in the same position as F&P [Appliances]; we have demonstrated resilience to the current economic conditions and we're in pretty good shape." But AIA would do the "right thing" by its shareholders and consider such an action at the appropriate time.
Moutter started in the job only recently and his salary is not yet public. His predecessor Don Huse had a pay package of $2.4 million, according to the latest annual report.
Chief executive of Fonterra Andrew Ferrier says he "expects to take a salary cut this year, based on business performance". The dairy trading juggernaut's annual report suggests Ferrier's pay package last year nudged $4 million. The Canadian says his pay is largely based on performance.
Fonterra is New Zealand's biggest company. It is a co-operative owned wholly by dairy farmers. With its milk payout sliding because of a commodity price collapse and $1.3 billion wiped off farmers' in-house share value structure last year, the co-op is under pressure to lift its game.
Contact Energy says it reviews executive pay around mid-year. Chief executive David Baldwin received total remuneration of $1.5 million last year.
The company notes two-thirds of his pay package is tied to company performance. Contact will post its half-year result on Tuesday.
Listed electricity supplier Vector posted a 17 per cent increase in net operating profit last week. It says executive pay has not been discussed by the board of directors but the executive team, led by Simon Mackenzie, was "unanimous" there was no appetite for pay increases in the current economy.
Stock Exchange chief executive Mark Weldon says he should be prepared to take a cut if he asks his staff to. He has just turned down a pay rise. Weldon was paid $899,375 last year, according to the NZX annual report.
"Chief executives should be prepared to participate in any measures their company is considering to ride out the crisis and emerge more strongly," he says.
"I just refused an OCR-related salary adjustment, with base and bonus held unchanged since 2005. This was a refusal of a 15 per cent cost of living catch-up to reflect the fact my salary has not changed in that time."
The chief executive of state-owned enterprise Mighty River Power, which sells electricity and gas to more than 350,000 New Zealanders through Mercury Energy, would not comment. Nor was Doug Heffernan prepared to talk on the prospect of a pay freeze. His pay package last year was $950,240.
Fletcher Building chief executive Jonathan Ling was overseas and could not be contacted. He leads New Zealand's third-biggest company on the NZX, which this month posted a nearly 30 per cent fall in half-year profit to $172 million. The company's latest annual report suggests Ling earned $1.75 million last year.
Fisher&Paykel Healthcare, a world leader in respiratory care devices, is expecting growth of around 70 per cent, according to its half-year result guidance to the market, but chief executive Mike Daniell says it is being wrongly associated with F&P Appliances' difficulties.
Given Healthcare's optimistic growth forecasts, the company is not considering salary reviews, he says. Daniell was paid $701,246 last year and received around $120,000 in share options and performance benefits.
Sharemarket commentator Brian Gaynor says there is no market "movement" to cut senior executive pay. If companies do have to cut salaries they should keep it to themselves.
"It doesn't do any good for public confidence. Making it public adds to negative sentiment. No one in New Zealand is paid an excessive amount. It's not an issue."
Business New Zealand chief executive Phil O'Reilly says any call for widespread senior executive pay cuts would not be a "patriotic gesture".
"It ignores the fact that individual enterprises are doing differently. It's as silly as saying all employees in New Zealand should not get a pay rise this year. In fact it would be disastrous for New Zealand because not only would people stop spending, we would lose our brightest and best to Australia."
Even sharemarket watchdog Bruce Sheppard says asking everyone to take a pay cut "just isn't going to work".
But Sheppard wants to see boards of directors ask whether it is appropriate to pay the chief executive one, two, 10, or 500 times the pay of the average worker in their company.
Veteran professional public company director Mike Smith agrees a "universal" pay cut response to the recession is inappropriate.
"The last thing you want is someone to come along and headhunt and you lose a bloody good chief executive," he says.
Directors would be better focused on a "hard-nosed" review of their strategic plan, Smith says.
