Editorial: Timing of pay boost bad look for Spierings

Fonterra CEO Theo Spierings. Photo / Jason Oxenham

Editorial

Theo Spierings has every right to be among our best-paid chief executives. His leadership of dairying giant Fonterra is pivotal to the fortunes of New Zealand's biggest export earner and, therefore, the country's wellbeing. That he earned almost $5 million in the latest financial year is no surprise. Unfortunately, the same cannot be said of the fact that this represented a pay rise of up to 18 per cent from the previous year.

That hefty increase came during a period of minimal inflation in which the country's dairy farmers felt the harsh impact of a cyclical downturn in commodity prices, and Fonterra began a process that will culminate with the laying off of 750 staff. That makes the extent of Mr Spierings' pay rise, and his acceptance of it, look bad. What may have passed virtually unnoticed in his native Europe was always bound to be criticised here.

It is not as though Mr Spierings and Fonterra had no warning. When, in mid-June, Fonterra announced that a head office restructuring would lead to redundancies, the Labour Party's primary industries spokesman, Damien O'Connor, said the chief executive should "lead by example and voluntarily reduce his pay by half". That was an extreme and unrealistic suggestion calculated to appeal to those burdened by envy. But it pointed to the reception that would be accorded a substantial pay increase.

Fonterra says Mr Spierings' latest figure included performance incentives earned the previous financial year when farmers received a record payout of $8.50 per kilogram of milk solids. It also noted that his package was based on international benchmarking and had been approved by the co-operative's people, culture and safety committee. All that, however, pays no heed to the subsequent change in Fonterra's fortunes.

Dairy farmers may feel a little less financially strapped after last week's announcement that Fonterra had reported a big turnaround in annual profit and a much improved forecast cash payout for this year. But they are still under considerable pressure. The forecast $4.60/kg of milk solids is still uncomfortably short of the $5.30/kg that many reckon to be their break-even point. There is also only hope, rather than certainty, that the recent upswing in commodity prices will continue. The news is, of course, even worse for the large number of staff about to be laid off.

In such circumstances, Mr Spierings would have been wise to reject a salary rise of such magnitude. This was an excellent opportunity to enhance his public standing. He could easily have accepted a substantial increase when the improvement in commodity prices was confirmed and Fonterra returned to a positive growth path.

No one would have begrudged him that.

The misstep is the more unfortunate in that Mr Spierings has shown signs he possesses the strong leadership needed to both reinvigorate the dairy giant and drive a value-added strategy that makes it less captive to commodity pricing. But the best leaders are fully aware of the nuances of the environment in which they operate. On that score, Mr Spierings has come up short.