Board faces fight over pay rise

Henry van der Heyden

Fonterra's directors will consider turning down a 7 per cent payrise amid growing signs of farmer discontent over remuneration at the co-op.

The board will meet to discuss the fee rise at a meeting next month.

But chairman Henry van der Heyden and other Fonterra directors contacted by the Business Herald yesterday refused to say whether they would vote in favour of the rise in directors' fees.

Figures from Institute of Directors surveys show 7 per cent is more than double the median rate of annual increases for a wide range of New Zealand directors in recent years.

The figure was agreed to by fewer than 60 per cent of those voting at the co-op's annual meeting last week, the lowest passmark of all resolutions.

Van der Heyden is due to get a $15,000 increase to $240,000, while directors' fees are set to rise about $7000 to $115,000.

Waikato Federated Farmers president Peter Buckley yesterday continued to call for directors to refuse the increase as a sign of solidarity with farmers facing a lower Fonterra payout, the threat of a further reduction, and higher costs.

Van der Heyden said yesterday that Buckley had not contacted him directly but confirmed the issue of accepting the rise would be discussed at the board's meeting next month.

He would not say whether he personally would accept the rise.

"I just don't want to actually pre-empt anything now," he said.

Stuart Gower, the head of Fonterra's remuneration committee, which recommended the rise, yesterday justified the 7 per cent increase by saying the co-op's fees were playing catch-up with other bigger Australasian companies.

The chairman of an A$5 billion-plus turnover company across the Tasman could expect between A$385,000 and A$556,000, while a director could expect A$141,000 to A$201,000, he said.

Other Fonterra directors spoken to yesterday would not explicitly say whether they would accept the rise.

But independent director Graeme Hawkins said the increase appeared justified. He said farmer-elected directors in particular put in an "enormous" amount of time on co-op business.

"If you look at the absolute payments they get it's hardly commensurate with the hours they put in."

Hawkins added: "I would have thought the last thing you would want to do is discourage capable people from within the industry from standing to be elected directors."

Director Malcolm Bailey said: "We'll do something as a group so I've got no comment as an individual."

Earl Rattray said: "If we decide to [forgo the rise], having gone through the process I certainly won't be making a big public issue about it."

Stu Nattrass said directors were well aware of the financial pressures farmers were under.

Roger France said there were a number of dimensions to the issue.

Meanwhile, Institute of Directors head of research and policy Richard Baker said yesterday that the average annual median rate of increase for surveyed New Zealand chairmen in the past three years was 3.2 per cent, and 2.2 per cent for directors. That compared with a 10-year average median annual rise of 3.3 per cent for chairmen and 4.5 per cent for directors.

Baker said he believed the lower rate of increase in 2004-06 reflected the fact that in earlier years fees had gone up to compensate for the removal of retirement allowances.

Median fees for non-executive directors in the year to July 2006 were $26,500, and $38,500 for chairmen.

The figures are based on surveys of around 1600 directorships involving about 400 individuals.

Baker said the role of boards was at least as important as that of a CEO, if not more so. And, as a general rule, the more significant and complex a business was, the higher the fees.

Baker said the combined fees of most boards were less than the cost of a CEO, something which could be accentuated in top businesses.

Fonterra CEO Andrew Ferrier's total pay is thought to have been more than $2.9 million last season. If Fonterra's board takes the 7 per cent rise, total fees in the current season would be around $1.62 million.

Fonterra Shareholders Council chairman John Monaghan said yesterday he was comfortable with the way the remuneration committee worked.