KEY POINTS:
High-flyers can expect their wings to be clipped as recession-hit New Zealand companies demand greater performance for executives' top salaries.
The demise of New York-based Lehman Brothers brought international scrutiny to the issue of excessive executive payouts as companies founder.
Chairman and chief executive Richard Fuld received compensation valued at US$22.1 million ($40.3m) last year incorporating a performance-related bonus of roughly US$4.3m.
Trouble was, there was little evidence of performance for the big payout.
Here, executives are increasingly likely to see a higher percentage of their potential salary truly "at-risk" as companies strive to get measurable performance from their top tier, says John McGill, chairman of Strategic Pay.
McGill commonly sees senior executives with a 30 per cent incentive component to salary packages, sometimes more.
At mid-level, company executives often start on a 10 per cent incentive component.
"If you accept the view that you have to earn your money, it becomes natural the use of incentive pay is fair and reasonable," McGill says.
Companies operating incentive pay systems are better able
to ride out recessions without cutting jobs, says Jarrod Moyle, manager of reward practice at Sheffield recruitment consultants.
"In the good times, people are rewarded, and rewarded well, and in the tough times, the company is not tied to paying large remuneration packages," says Moyle.
And Moyle warns executives that while their salary increases have averaged about 5-6 per cent annually in recent years, compared with 4 per cent for general staff, those days are over.
Bosses should bank on no more than a 4 per cent rise, and workers 3 per cent, as unemployment rises and economic conditions tighten, Moyle says.
McGill says: "No one is sure how bad things are going to get. So far we are in recession, but it's recession with a small 'r'."
Financial uncertainty is now prompting changes not only to senior executives' pay, but to companies' underlying remuneration frameworks.
Use of remuneration packages with an incentivised component is becoming more widespread over lower level roles as firms manage their wage bills.
Schemes can run into difficulty in monitoring targets and the communication process, however McGill says that the key to making them work is performance management.
Incentive pay systems can be applied to any sort of job, he says, but successful systems need set objectives and result evaluation.
Of overarching importance is an organisation's culture of trust - a company needs a reasonable set of robust and transparent criteria to allocate pay fairly.
Management of remuneration structures should also be tailored to the organisation.
McGill says: "We're long past the days where one size fits all."
