Liam Dann: Don't let envy drive debate about CEO mega-salaries

Imagine the administration and logistical hassles of owning a helicopter. Photo / 123RF

Like many people, I am a fan of money.

But I'm only a casual fan.

My enthusiasm probably sits on a par with my love of The Beatles.

I appreciate the genius of the Fab Four's studio albums.

There have been times in my life when The Beatles were quite important.

I just don't feel the need to collect rare bootleg recordings or memorabilia. I don't even have a T-shirt.

There is a limit to how much Beatles I need in my life.

All you need is love, really.

Likewise, I've never made it one of my goals to acquire at lot of money (I guess I chose the right career for that).

As I get older and ponder my middling monetary status, my lack of enthusiasm for acquiring wealth is looking increasingly like the culprit.

Having spent the past 20 years talking to the best business brains and learning to understand expert financial information, I can't blame ignorance.

Lying on a beach in the Bay of Islands over the summer break and watching rich-lister helicopters fly overhead I felt a smug sense of satisfaction in having arrived by beat-up Toyota.

Imagine the administration and logistical hassles of owning a helicopter, I thought.

You could hire someone to handle all that but then you've got staff to manage - ugh.

More money, more problems, as rapper Notorious BIG used to say, before he was rather problematically shot.

So, there I was on the beach enjoying the exact same scenery and getting just as drunk in the afternoon as all those rich listers in choppers.

Of course, if your great passion in life is helicopters themselves, then good luck to you.

I'm all for following your dreams and some dreams require more money. It's a question of priorities.

I've never begrudged those who earn mega-salaries at the top of the corporate world.

Perhaps that's why I take such a dispassionate view of the Business Herald's annual CEO Pay survey - which was published last week.

The pay survey this year was topped by Fletcher Building boss Ross Taylor, who was paid $5.3 million in the 2019 year.

Good luck to him. He'll need it after the run Fletcher Building has had in the past few years.

I don't see much point in targeting individuals personally for being paid a lot.

If there are problems with excessive chief executive salaries - and I think there are - then they are systematic.

The gross inequity between the guy (and let's be honest it's usually a guy) in the boss's chair and the worker on the shop floor is glaringly obvious.

That kind of unfairness shouldn't surprise anyone familiar with human history, or the way of the world in general.

CEO salaries are growing far more rapidly than the average wage. Photo / 123RF

Wealth disparities begin with social inequalities which aren't easily fixed and won't be by this business column.

But the survey also found (as it almost always does) that CEO salaries are growing far more rapidly than the average wage.

They rose 12 per cent to an average of $1.75m last year.

This is despite the fact that we supposedly live in a low-growth, low-inflation era.

Average wage growth for workers was about 2.4 per cent.

What gives?

One reason for this disparity is almost certainly bonus culture.

Base salaries - even big ones - are reasonably stable but bosses get additional payouts for hitting specific targets. This is meant to incentivise them to do a good job.

Quite why a multi-million salary and pride in your work isn't enough incentive isn't clear.

This was raised bluntly by the Australian Reserve Bank Governor Philip Lowe last year.

In a speech to business leaders, Lowe (on a flat salary of around NZ$1m) said: "I don't need the incentives, my incentive is to do a good job for the people."

He took aim not just at bonus culture generally, but at short-term incentives which don't ultimately strengthen company performance.

One reason why bonuses are so good right now is that they are often tied to sharemarket performance.

But sharemarkets have risen dramatically across the board in the past decade largely due to the weight of baby boomer retirement funds and a lack of alternative investments.

That means some CEOs are effectively clipping the ticket.

It raises the question of whether pay structures incentivise the right strategic decisions for long-term corporate health.

The way salaries are paid may ultimately be more important than the top-line numbers themselves.

Is that any of the public's business?

I'd argue it increasingly is.

Clearly the responsibility for good-quality remuneration schemes sits with directors and shareholders.

Organisations like the New Zealand Shareholders Association have long advocated for more transparency about chief executive bonuses.

But they've struggled to get traction with boards because they get little support from much larger shareholders - typically big international fund managers.

Most of us are shareholders now, though – thanks to KiwiSaver.

We contribute from our modest salaries to those big funds which do have the clout to put pressure on boards.

Like footballers and entertainers, super-star leaders will command super-star salaries.

That privilege comes with expectation of goals, hit singles and strong profits.

Public debate on this issue is important.

It shouldn't be led by envy, but out of a pragmatic desire for a more efficient and more productive business world.