CEO pay lifts off as profits stagnate

Telecom chief executive Paul Reynolds. Photo / Glenn Jeffrey

The Business Herald's executive pay survey shows the number of chief executives being paid more than $1 million jumped from 26 to 32 between 2008 and 2009.

It's only nine years since Craig Norgate became this country's first "million dollar man" when he took the helm of Fonterra in 2001.

When the executive pay survey - which uses data from the annual reports of New Zealand's biggest listed and state-owned firms - was first carried out in 2005 just six New Zealand chief executives broke the $1 million threshold.

Despite most of the companies surveyed reporting falling profits, the pause in pay rises for top executives appears to have been limited to a single year.

The average pay rise received by chief executives increased from 1 per cent in 2008 to 13 per cent last year.

The trend which has seen chief executive pay outpace that of other workers over the past decade is back on track.

The labour cost index, released by Statistics New Zealand last month, found the median increase received by New Zealand workers in the year to March was just 3.3 per cent.

The 13 per cent average rise in our survey is still down on the 25 per cent average of 2007, which reflected the economic boom times that existed in the middle of this decade.

Seventy-five per cent of the chief executives surveyed by the Business Herald, whose pay could be compared with the previous year, received salary increases. Those ranged from 2 to 77 per cent.

Many of the million-dollar club members are receiving salaries well in excess of that, and there's no prize for guessing the man at the top - Telecom chief executive Paul Reynolds.

He was paid a well-publicised $5.4 million in 2009, which included a $1.3 million performance incentive (recognising work prior to the XT failures and subsequent share price dive).

Reynolds' pay was equal to that received by his predecessor, Theresa Gattung, when she departed Telecom with a $1.8 million golden handshake in 2007.

The Scotsman's salary also includes a "special payment" of $243,950 to be used for travel between the UK and New Zealand.

The Warehouse chief executive Ian Morrice jumped six places up the 2009 list into the number two position, thanks to a $1.6 million pay increase that included $1.2 million for reaching "performance targets".

The Warehouse's profits dropped by $14 million between 2008 and 2009.

Shareholders' Association chairman Bruce Sheppard says Morrice's remuneration makes Paul Reynolds look like a cheap option for Telecom.

"I cannot for the life of me see why a board would have approved a salary of that level for a CEO who is running a series of shops where their turnover isn't growing strongly and their value proposition doesn't appear to be transparent any longer," Sheppard says.

Asked how The Warehouse justifies paying Morrice $1.2 million performance pay in a time of falling profits, chairman Keith Smith says: "The question regarding Mr Morrice's remuneration was asked at the annual shareholders meeting on 27 November 2009 and was answered on that date to the satisfaction of the shareholders present."

Smith also points out that Morrice didn't receive any performance-based pay in 2008.

The highest paid Fonterra employee, likely to be CEO Andrew Ferrier, sits at number three on the list with a $3.8 million pay packet.

Steel & Tube Holdings chief executive Nicholas Calavrias moved from 26th place on the 2008 list to fifth place last year following a $1.1 million termination benefit and a long-term incentive payment of $700,000, which pushed his pay up to $2.9 million.

In fourth place is GPG chief executive Tony Gibbs, with the $2.6 million pay packet he received despite the firm posting a $77 million loss. But his salary has come down from the $6.9 million he received in 2007.

Sanford managing director Eric Barratt, who received the biggest pay increase (up 231 per cent to $1.6 million) in last year's survey, got the largest pay cut this year - down 65 per cent to $545,036.

Barratt's rollercoaster remuneration resulted from a one-off $1.1 million pension entitlement payment transferred into the New Zealand Retirement Trust superannuation fund, on his account, in October 2007, which showed up in last year's survey.

Shareholders' Association corporate liaison Des Hunt says the pay many of New Zealand's top executives receive is not reflected in company performance.

Hunt says workers are likely to take strike action against their employers if chief executives continue to receive salaries in such extreme disproportion to their own.

"We find it difficult for the average pay of a chief executive to be much more than 7 to 20 times the average salary paid for the other people in the company."

He says the Shareholders' Association will be pushing listed companies to include the average pay of their workers in their annual reports.

Jarrod Moyle, director of remuneration advisers Moyle Consulting, says New Zealand's largest firms need to pay salaries in line with international norms. "It's an investment that they are making and [firms] want to make sure they get the best possible person," Moyle says.

The results of the Business Herald survey differ from the results of a Moyle survey, released last month, which surveyed a broader cross section of company bosses.

It found the median increase for Kiwi chief executives in 2009 was 0 per cent - meaning more than half of the 455 survey respondents received no increase in their base salaries.

Of those chief executives surveyed by Moyle who did receive a pay rise in 2009, the median increase was 5 per cent, compared with the Business Herald's average of 13 per cent.

Strategic Pay chairman John McGill says an underlying trend in chief executive remuneration shows the gap between their pay and other staff members increasing. "It's a real and identifiable trend," McGill says.

CEO pay review: Our methodology

The Business Herald's annual pay review looks at chief executives from the largest listed companies plus taxpayer-owned enterprises.

Property trusts are not recorded. Australian companies listed on the stock market here are if they provide details on executives responsible for New Zealand operations. Dairy farmer co-operative Fonterra is also included.

Annual reports may specifically detail what the chief executive gets paid or simply list un-named employees in certain pay brackets.

There is no standard requirement for reporting chief executive pay in New Zealand, whereas Australian firms provide a detailed breakdown of the top five executives. Any broad review has to make assumptions.

* Data is sourced from annual reports.

* Currency conversion rates: NZ$1=A$0.81; NZ$1=£0.47.

* Pay from previous years paid in a foreign currency was recalculated with new conversion rates.

* Average pay and percentage changes calculated on records where data was available for both years.

* Unless declared, the top-paid employee was assumed to be the CEO.

* Where earnings for an unspecified employee were declared in a band, the upper limit was used.

* Some data may contain redundancy payment information.

* Remuneration is based on declared earnings including base, bonus, performance and share options.

* Pay from previous years may have been recalculated on the basis of bonuses paid rather than earned during the period.

* Average pay and percentage changes were calculated excluding SkyCity Entertainment and PGG Wrightson data, where changes in pay levels were unduly affected by appointment dates.