Executive pay is a mystery to most of us. How could anybody be worth the $8.32 million Fonterra has paid its chief executive, Theo Spierings in the latest financial year?

Even if it was a fantastically successful year for the farmers' dairy co-operative and its milkers, $8 million seems wildly excessive by the standards of ordinary wages and salaries.

In fairness it should be pointed out that "only" $2.46 million of the CEO's package was base salary, the certain income that bears comparison with a secure wage.

But that sum breaks down to $47,500 a week, which is not much less than the average New Zealand wage earner receives in a year.


When you add the CEO's additional benefits worth $170,036, and the incentive payments he has been awarded - $1.83m on short-term incentives, $3.86m for the long-term - the total is the equivalent of $160,000 a week, which is far more than most us earn in a year, including those who get out of bed before dawn to milk the cows.

It is cold comfort to be reminded that chief executives' salaries are set by boards of directors who are looking at the company's earnings and other performance indicators, and they are answerable to shareholders - especially farmers in Fonterra's case - for the rates they pay. Federated Farmers board member Chris Lewis says of the salary, "Yes, it's a lot of money. But Fonterra is a unique business, it is very hard to compare it to any other company in New Zealand."

Fonterra's chairman, John Wilson, said Spierings' remuneration was benchmarked using independent advisers and measured against 24 Australian listed companies of similar size. It would be good to hear him say what the chief executive specifically did to deserve such an eye-watering amount.

It is true Fonterra is unique in New Zealand - our only company of truly significant scale internationally.

It has multinational investments in production and marketing and it is one of the leading dairy traders in the world. But is also true to say that international executive salaries have risen to a point that causes concern throughout the developed world.

Developed countries are generally liberal democracies that believe in rich personal rewards for risk, enterprise, leadership and success. But they are also believe in fairness and social equity.

When they suspect corporate executives and directors are ratcheting up their salaries by paying each other fortunes, sooner or later a backlash is likely to occur.

It may take the form of tax rates and regulation that discourage enterprise and effort in the name of sharing wealth. That is in nobody's interest.


Good chief executives deserve to be very well paid. Leadership is not easy in any field and good leaders are scarce. Not many people have the personal qualities and drive required to get an organisation performing as well as it should be.

Business leadership is especially hard because there are usually clear numerical measures of the organisation's performance.

Boards who pay business leaders should apply those measures rigorously and be seen to do so. Too often, we suspect, they are too soft.