Fonterra freezes top executives' pay

Andrew Ferrier. Photo / Dean Purcell

Fonterra has become the latest major company to freeze executive pay packets in the face of the economic downturn.

Fonterra said the salary of chief executive Andrew Ferrier and eight direct reports would in effect be frozen until October 2010.

"The economic environment and how it's played into the dairy industry with a very, very low payout for our farmers, you know, I think sometimes you have to take more significant measures than you otherwise would take," Ferrier said.

"When you freeze senior management salaries in particular it is a signal to farmers that we're kind of in this together."

Fonterra's forecast payout to farmers for 2009/10 was $4.55 a kilogram of milksolids, down from the prediction for 2008/09 of $5.20 a kg.

Based on the expected production in 2008/09 the lower payout this season could result in a cut of about $900 million.

According to Fonterra's 2008 annual report, the highest-paid employee - likely to be Ferrier - earned up to $3.98 million on an annualised basis for the period ending July 31, 2008, compared with up to $3.37 million for the year ending May 31, 2007.

"The financial benefit [of the pay freeze] to the company ... is minor in the scheme of things but it's a fair kind of share-the-pain-type gesture that we think is appropriate," Ferrier said.

Fonterra general manager human resources Kira Schaffler said that, as with any company, bonus structures were typically based on a target which was deemed to be a percentage of the base salary.

"So when you freeze the base you automatically freeze the structure of the bonus system as well," Schaffler said.

Fonterra's top managers were not the only employees to have their pay packets affected, with about 5000 staff having annual reviews effective on June 1 pushed back to October 1.

"So effectively every salaried employee across Fonterra has had their pay frozen for that four-month period," Schaffler said.

Fonterra was on target to cut discretionary spending by $70 million for 2008/09, compared with the previous year.

In May Air New Zealand froze the pay of salaried staff earning more than $80,000 - a move which would affect about 1000 people - as it looked to cut costs.

Air New Zealand chief executive Rob Fyfe said the airline was doing what it could to cut labour costs by natural attrition, leave without pay, use of excess leave balances, more flexible working arrangements and reducing overtime.

In April ASB Bank froze the pay for 3500 people earning more than $50,000 a year, with everybody earning under $50,000 getting rises of between 2 and 3 per cent.

ASB staff were given the option to reduce hours, and a bonus pool due to be paid out in August was reduced.

ASB chief executive Charles Pink said the moves were intended to responsibly address the effects on its business of the global economic recession and protect jobs.

Telecom in February decided on an executive salary freeze which chief executive Paul Reynolds said complemented other initiatives to control costs.