State-Owned Enterprises Minister Simeon Brown says the pay of CEOs at such companies should be closely tied to performance. Photo / RNZ
Chief executives at some state-owned enterprises were awarded six-figure pay increases while their companies’ profitability tanked, according to advice from Treasury.
Some bosses at partly Government-owned companies are now among New Zealand’s best-paid executives, with Mercury’s ex-CEO Vince Hawksworth taking home $3.8 million in base pay and benefits in 2022/23, according to Treasury. That pay was awarded during a year when the company’s profits jumped 45%.
Mercury said remuneration was “strongly tied to company performance and sustainable shareholder value”.
“We externally benchmark annually to ensure competitiveness with comparable market peers (of a range of company types) and consider individual performance, skills, expertise and experience.”
The figures come from advice ordered by State-Owned Enterprises (SOEs) Minister Simeon Brown soon after he won the portfolio in a reshuffle. He asked Treasury to compile two reports, one on measuring the performance of SOEs and another looking at the pay of their chief executives compared to that performance.
Treasury said the growth in executive pay across the companies was “modest” with pay increasing 3.4% between 2022 and 2024, when general inflation was 4.5%. It singled out some companies as cases for concern because executive pay moved in the opposite direction to the firm’s results.
It was less happy, however, with the overall performance of SOEs, noting that “just over a third of the 100% Crown-owned profit-oriented companies you [Brown] are responsible for have performed relatively poorly over the last five (or more) years”.
Treasury singled out Transpower, Quotable Value and Kiwi Group Capital (Kiwibank’s holding company) as top performers and said the poor performance of others, such as Airways and AsureQuality, could be blamed on the pandemic and economic cycles.
This left 30% of the companies that “consistently underperformed, in some cases significantly”. These companies included NZ Post, Landcorp, Metservice and Kordia.
Landcorp is a wholly state-owned farming company, which trades as Pāmubut Treasury calls it by its legal name.
Landcorp was singled out in the paper ordered by Brown that compared the performance of 17 SOEs, measured by their profitability and dividends, with the pay of their chief executives.
The pay for Landcorp’s chief executive, including incentives, climbed from $760,000 in 2021/22 to $927,000 in 2023/24 despite the company’s profit nearly halving from $64.8m to $36.3m.
Most of that pay was earned by Mark Leslie, who took over as chief executive in March 2022.
Treasury said part of the increase in 2024 was because of a “short-term incentive” although Landcorp disputed this to the Herald, saying most of the increase in 2024 was due to the payment of a full-year, short-term incentive. In contrast, the incentive paid for 2021/22 was only for a part-year payment (3.25 months, to be exact).
Brown said he wanted to make it clear the remuneration chief executives received should be “closely tied to performance”.
“I have received advice from Treasury which outlines that particularly for entities such as Landcorp, that there isn’t a clear link between performance and the remuneration of their chief executive and I’ve written to the board chairs outlining my expectation around remuneration,” Brown said.
He conceded there are “some companies which are really not performing very well” and again singled out Landcorp.
“Our expectation is they need to perform better.
“Landcorp in particular is one that I’ve asked for a turnaround plan from the board. It is an entity that has not been performing for many years and that’s not acceptable to the Government.
“Our expectation is they focus on their core business and they divest from parts of the business that are not parts of the core business,” he said.
Brown cited Landcorp’s decision to explore opportunities in sheep milking as an example of where it had become distracted from its core focus.
Landcorp said it was transparent about chief executive remuneration through its integrated report. It said its policy reflected individual contribution, incentivised performance and was “compelling relative to the market in which we compete for talent”.
Executive team remuneration consisted of fixed remuneration and short-term performance incentives, of which performance metrics are a component.
Will Burrett, Landcorp’s chief operating officer, told the Herald the company had come a long way over the past two years, with structural changes to the business as well as clear key performance indicators (KPIs).
“[We’ve] fundamentally changed our operating model, moving away from dairy and livestock enterprises into more of a regional-type approach where we’re now driving regionalised performance with dry matter and livestock flows, and integrating our forestry team within that as well,” he said.
He said those changes were about ensuring Landcorp was focused on its core business.
Landcorp said it is on track for a record profit as farm performance improves and farmgate prices rise. It is forecasting a net operating profit (NOP) of $43m to $51m for the 2025 fiscal year, which it says is double the five-year average. By 2030, it wants to deliver a NOP of $100m and total shareholder return of 8.8%.
“I think we’ve got the foundational aspects of the business right and now it’s about driving the business culture and simplifying it back to core business and what the levers are that really actually drive profit,” said Burrett.
He said he was “comfortable” Landcorp had the “right internal structures, behaviours and culture to drive the operation turnaround that [the minister’s] seeking”.
Asked what value he believed Landcorp provided New Zealanders, Burrett said it had a “duty of care to the sector to be able to challenge systems thinking”. That included trialing things others potentially can’t, he said.
“We put ourselves at risk a little bit, but we’ve got to earn the right to do that and that’s something that only comes with good sound financial performance. Once we’ve got that sound financial performance, those trial, those system changes that implementing become even more validated.”
With regard to sheep milking, Landcorp provided a statement saying it had one such operation at St Kilda in Taupō with 850 milking sheep.
“We see a compelling opportunity in sheep milking in New Zealand to deliver an industry that creates opportunities for New Zealanders, reduces environmental impact and creates high-value export growth for the economy.”
It said it had previously invested in a company called Spring Sheep, which is achieving success, including with infant formula in China.
As National continues to hint at running on a policy of part-privatising SOEs at the next election, Treasury said it was happy with the performance of companies that had private shareholders.
“Companies not 100% owned have done reasonably well and are broadly meeting their cost of capital. In our view, the primary reason for this performance is the external ownership disciplines imposed through companies being listed,” officials said.
Most of these companies are the part-privatised energy companies and Air New Zealand. While Treasury may be happy with the performance of these companies, New Zealanders are not. Last October, energy firm Octopus contracted Curia to poll whether New Zealanders believed power company profits were too high.
Sixty-eight per cent believed they were, with just 15% thinking profit levels were reasonable.
The officials looked at performance from the financial years 2022 to 2024 and found there “did not appear to be a simple relationship between CE [chief executive] remuneration and dividends”.
However, the officials added this was not unusual, given many of the companies took a long-term view to managing their firms – many prioritised reinvesting in their companies over paying a dividend.
The officials used earnings before interest, tax, debt and amortisation as an indicator of profitability and base salary, benefits, and short- and long-term incentives as the measure of remuneration.
The officials looked at other measures of shareholder return, too.
“Chief executives should also be remunerated for the value they add to the company, not solely on the company’s profitability,” officials said.
Treasury singled out four SOEs, AsureQuality, Landcorp, Quotable Value and Transpower, for increasing their CEO pay while profits decreased.
It exonerated Transpower somewhat, noting the poorer than expected performance could be blamed on regulatory changes and its dividend yield had averaged 7.5% a year and its return on equity had averaged 8.5%.