Finance Minister Bill English was given advance warning there may be some curly questions over the level of staff bonuses at the Guardians of New Zealand Superannuation after its best investment year ever.

Senior managers and executives received $1.39 million from their incentive scheme in the 12 months ended June 30, up by more than a $1 million from the year before as staff enjoyed the rewards from the best annual return by the New Zealand Superannuation Fund.

The biggest beneficiary, presumably chief executive Adrian Orr, saw his base salary band of between $470,000 to $480,000 rise to between $710,000 to $720,000 with the bonus.

That increase prompted chairman David May to write to English on September 29 to explain the incentive scheme, which has the board's backing, and warn "we expect this to gain media attention."


"What has caused the large increase is an exceptional one-off payment caused by the improvement in the long-term performance of the fund," May said in a letter released to BusinessDesk under the Official Information Act. "It is achieving what was intended - to reward investment performance over four years rather than one."

The scheme is based on a four-year performance period and is only realised if the average return exceeds its target over the time. It also allows for 'catch up' payments if poor years are followed by exceptionally good years.

May said the 'catch up' component bolstered this year's bonus after the 2008 and 2009 financial years didn't meet the targets, though the latest year, when the Super Fund made a 25 per cent return after fees, compensated for those weak years and amounted to 36 per cent of salary for all staff.

That was the best year for the Cullen Fund, so-called for its architect former Finance Minister Michael Cullen, since its inception in 2003, outstripping the 19 per cent return in 2005/06.

That strong performance saw external fund managers clip the ticket, with a $35.1 million expense on performance-based managers' fees, up from $1.4 million a year earlier. Base fees slipped to $34.7 million from $36.3 million.

Since the reporting period, the fund reported monthly declines of 2.8 per cent and 5 per cent in July and August as financial markets sank, wiping $2.17 billion from its balance. As at August 31, the fund was worth $17.36 billion.

The fund was set up by the previous administration to help pre-fund the pension bill of an ageing population, and won't start making payments until 2030.