Air NZ directors rocket into orbit

By Selwyn Parker

Between the lines


Air New Zealand chairman Sir Selwyn Cushing probably expected shareholders to grizzle when he sought their approval to more than double directors' fees at Wednesday's agm. After all, he has endured a fair bit of grizzling from shareholders at Brierley.

But is the rise in fees justified?

The facts are that Air New Zealand's nine non-executive directors will share $890,000 this financial year, up by 125 per cent on the $400,000 fixed in 1994. Seven non-executive directors will receive $90,000 each, the chairman $160,000 and the deputy chairman $100,000. Before putting the new fees before shareholders, the board consulted the latest surveys on boardroom remuneration and commissioned a review from a Sydney firm.

Air NZ's argument is that the directors' job is bigger than it was because the national flag carrier is a larger, more complex business than five years ago, and that fees had fallen behind.

As an argument for a pay rise, this is fair enough. But as justification for a 125 per cent rise, it's got more holes than a slice of Emmenthal. Air New Zealand has always been a big, complex and international business and, anyway, you've only got to compare the remuneration of non-executive directors in other big, complex, international businesses.

Carter Holt Harvey's six non-executive directors earn $50,000 each; chairman Sir Wilson Whineray receives $70,000. Their total fees are slightly more than a third of the airline's proposed ones. Yet with net sales nudging $3 billion, Carters is hardly an inconsequential business.

Further up Highway One at Penrose, Fletcher Challenge's non-executive directors earn base fees of $58,000 each, set four years ago.

Fletcher has 11 non-executive directors, two more than Air NZ, yet total fees are 28 per cent less.

Has Air NZ misread the latest information on board remuneration? Korn Ferry International's 1999 survey shows that Australian non-executive directors' average fees were $60,000 compared with $30,000 here. These figures put its $90,000 per director into thin air by comparison, even for enlarged responsibilities.

We certainly want a profitable and dynamic Air New Zealand with commensurate rewards for directors' performance. After all, New Zealand's Institute of Directors warned nearly three years ago that fees had to rise to strengthen boards.

But the institute also warned of the PR risks of hefty boosts in boardroom pay in an era of low inflation. This was "a potentially contentious matter" that should be handled "in a sensitive and professional manner". Given this advice, a hike of 125 per cent is a boot up the backside.

A lot of ingredients go into the pot of directors' fees including relativity to the chief executive's package (Air NZ chief Jim McCrea earns $1.1 million). But somebody's thrown in a mystery ingredient at Air NZ that has spiked the brew.