Theo Spierings, the Fonterra chief executive, came under fire last week when the dairying giant announced plans to lay off hundreds of staff in a head-office restructuring. The Labour Party's primary industry spokesman, Damien O'Connor, said he should "lead by example and voluntarily reduce his pay by half". The last thing Mr Spierings needed, therefore, was yesterday's release of the Herald's annual chief executives' pay survey. It confirmed he was the country's second-highest-earning executive, with a pay packet of $4.18 million, up $660,000 in a year.
That was the cue for further outrage. Labour's Grant Robertson termed that level of salary "absurd" and the Greens' Denise Roche suggested Fonterra's farmers would be "shaking their heads in disbelief". Some, indeed, may have been if they thought no further than their recent payouts, the consequence of a prolonged fall in global dairy prices. But far more will be withholding judgment until they see what Mr Spierings achieves at Fonterra. He may be worth every cent of his pay packet if his leadership reinvigorates the company and drives the implementation of a vision that will make it less susceptible to downturns in commodity prices.
Mr Spierings is seeking to achieve this by making Fonterra more of a valued-added producer. There is nothing particularly new in this line of thinking. It has been talked about for many years. But accomplishing it has proved elusive for a wide range of New Zealand exporters.
The competition in the global dairy market is intense. To succeed, many aspects of Fonterra's business will have to be spot on, not least quality, innovation, logistics, marketing and branding. In that context, the plan to restructure the head office and direct more staff into sales and marketing makes sense. Fonterra stands to reap big rewards. A ready pointer, if not apples-for-apples, lies in how well Tatua, a small Waikato co-operative, has weathered the commodities slump. It does not make milk powder, butter or cheese.
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Mr Spierings should stand or fall on his ability to implement that value-added strategy. Likewise, the salaries of the other chief executives who feature prominently in the Herald survey must be judged on their performance. What angers people is the number who oversee a decline in shareholder value but still enjoy or walk away with substantial payments. That is especially the case if their salary is hugely out of kilter with what their staff earn.
It is important, therefore, that pay should be closely tied to performance. Shareholder vigilance should play a major role in this. But too often excessive and poorly framed packages have been approved thanks to the voting clout of institutional shareholders who place no great importance on executive pay. It would help if they broadened their horizon beyond the short term.
The existence of some undoubtedly extravagant salaries should not, however, detract from the importance of strong leadership. It is integral to the success of every company. And when that entity is as big and important as Fonterra, to the wellbeing of every New Zealander.