Fonterra chief's $1.5 million pay increase

Andrew Ferrier's salary package is now in a range with an upper limit of $5.11 million. Photo / Dean Purcell

The pay packet of Fonterra chief executive Andrew Ferrier has soared by nearly $1.5 million.

The dairy farmer co-operative's 2010 annual report yesterday showed Ferrier's pay for the year ended July 31 was in a range with an upper limit of $5.11 million, compared to $3.63 million the previous year.

The pay jump would put Ferrier level pegging with Telecom chief executive Paul Reynolds who was paid $5.15 million for the year ending June 30 and who previously headed the Business Herald's chief executive pay survey for 2009 at $5.41 million.

Fonterra group director human resources Jennifer Kerr said there had been a base-pay freeze during the period and that the increase was due to variable elements.

"The variable nature is based on a number of metrics which were all hit and it relates of course to the 08/09 year ... it was the year of the global financial crisis and we came through very well," Kerr said. Profit had been the second highest and there had been record earnings in the consumer businesses, while the balance sheet was in better shape than it had been, she said.

Fonterra was pretty good at setting tough targets, which were approved by the board, she said.

"My experience of farmers is generally that they understand very well the concept of 'you set a bloke goals and if he meets them you pay him what you said you were going to pay him'."

The more senior the employee, the higher the proportion of performance pay, Kerr said: "I think our shareholders understand that setting aggressive targets and having management that meet them is absolutely aligned to their own interest."

Federated Farmers Dairy chairman Lachlan McKenzie said the pay packet was a lot of money. "There's always tension there from farmers who have huge fluctuations in their income and when they see significant figures like this being paid to anybody there's always some serious questions and soul searching."

Farmer income was good but on-farm inflation had been huge during the past couple of years, he said.

"We're not out of the wood. The farmers that are well structured, low debt, things are OK but there is a significant number of farmers there that [have] still got issues that they have to deal with."

Fonterra last month said the payout for 2009/10 before retentions would be the second highest at $6.70 per kg of milksolids, compared to $5.21 the previous year, while the forecast for the 2010/11 season was between $7 to $7.10 a kg before retentions.

Fonterra's profit after tax for the year ended July 31, 2010 was up 12 per cent at $685 million.

A $7.10 payout for 2010/11 based on stable production levels could be worth about $9.1 billion.

The payout was related to global prices and the exchange rate, McKenzie said.

Profit was indicative of the performance of Fonterra and was edging in the right direction, and the mood among farmers generally was on the positive side, he said.

Fonterra's annual meeting is on November 18.