CEOs feel the freeze as bonuses criticised

New Telecom chief executive Paul Reynolds is now the highest-paid boss with a $4.792 million package which includes a $1.325 million base salary. Photo / Richard Robinson

The growth in the pay packets of New Zealand's top executives has slowed dramatically in the wake of the global economic crisis as performance bonuses come under fire.

A Herald investigation into 49 NZX-50, state-owned and private companies has found the average increase last year was just 5 per cent and some executives took significant drops in their total remuneration.

While the increase was still above inflation, it was significantly down on the 25 per cent average jump seen between 2006 and 2007 and the 23 per cent growth between 2005 and 2006.

Last year's highest-paid executive, Guinness Peat Group's Tony Gibbs, took the biggest cut, dropping from a record $6.9 million to $2.8 million after his bonus was dropped altogether as GPG shouldered a $187 million loss.

That saw Gibbs drop five places down the earnings ranks to sixth.

The Warehouse chief executive Ian Morrice took a 54 per cent pay cut to $2.149 million after last year's one-off incentive bonus.

But even without that his 2008 pay was less than the $2.346 million he earned in 2006 as the retail sector took the full brunt of the downturn.

The third-largest drop came from banking giant ANZ, which cut the pay of its New Zealand chief, Graeme Hodges, for the second year in a row, down 12 per cent to $2.018 million following on from a 24 per cent cut in 2007.

But new chief executives were still able to broker themselves a good deal with three out of the five highest-paid executives new to their position for the 2008 reporting season.

New Telecom chief executive Paul Reynolds is now the highest-paid boss with a $4.792 million package which includes a $1.325 million base salary, $1.312 million in performance incentives paid out in cash and shares and a further $1.75 million in rights to shares over the next three years.

Reynolds, who was enticed to New Zealand from Britain, also received a $404,735 special payment for his consultancy services prior to appointment as well as payment for personal travel between Britain and New Zealand and relocation and accommodation costs for the first two years of his employment with Telecom.

His package failed to beat the golden handshake former Telecom chief Theresa Gattung secured for herself - she was paid $5.412 million in 2007 for her early departure - but is much higher than Gattung's 2006 package of $2.907 million.

SkyCity boss Nigel Morrison also has the potential to be in the money after joining the casino group in March last year.

Morrison received only $400,000 in the 2008 financial year for his four months' work.

But he could earn up to $4.3 million a year with a basic salary of $1.3 million, a short-term incentive plan of up to $1.2 million a year that can be taken in cash or shares, and a long-term incentive plan of up to $1.8 million by way of share rights that can be obtained at no cost.

Westpac New Zealand group executive Brad Cooper managed to secure himself a $3.77 million deal for his short stint in the New Zealand role.

Topping the biggest increases was Sanford chief executive Eric Barratt, who shot up 231 per cent to $1.56 million after he received a one-off pension payment of $1.079 million into his superannuation scheme.

Departing Auckland Airport boss Don Huse was second with a pay packet boost of 168 per cent to $2.418 million after he was paid a long-term incentive bonus of $1.343 million.

Air New Zealand chief Rob Fyfe received the third-highest increase between 2007 and 2008 after a long-term incentive bonus earned in 2007 was paid out in 2008.

In total, 26 executives earned more than $1 million, up from 16 last year, boosting the average pay from $1.02 million to $1.29 million - 29 times the average yearly fulltime income of wage and salary earners at $44,200.

Dennis O'Callaghan, managing director of performance pay specialists Strategic Pay, said the drop in total remuneration growth was likely to be due to a change-down in incentive and bonus payments.

But he believes the full effect of the economic crisis has not hit executive pay as most would have negotiated increases before October last year when the international financial problems intensified.

O'Callaghan said surveys undertaken by his firm in September last year had shown fixed remuneration was still moving along quite healthily.

But when bonuses were factored in the total pay packets were starting to slip. O'Callaghan said market-linked pay was now at the "end of the golden road".

Jarrod Moyle, reward practice manager at executive consultancy firm Sheffield, said 2008 had seen fewer companies making bonus or incentive payments and those who were getting them were getting less.

A survey of 500 executives by Sheffield found incidence of bonus pay had dropped from 65 per cent to 53 per cent and the amount had dropped to three-quarters of the target - a nine-year low.

But Moyle said not all bonus cuts were being attributed to a drop in company performance.

"Some companies want to steer clear of executive excess. Nobody wants to be the New Zealand AIG."

He said New Zealand did not have the same level of bonus payouts as the US where they have been substantially more than the average income.

"I don't think New Zealand would stand for it. It goes against the grain of who we are."

He expected to see growth in median base pay to drop to 2 to 3 per cent this year while executives would be unlikely to get any bonuses over the next few years.

Shareholders Association chairman Bruce Sheppard said he was surprised to hear there was an increase at all given the state of the economy. He believed the pay of chief executives should decrease by 25 to 30 per cent this year because profits were down but said they were likely to be flat.


AMERICA'S BIG EARNERS

Highest-paid US executives in 2008.

1) Sanjay K. Jha
Motorola
US$104.4 million

2) Lawrence J. Ellison
Oracle
US$84.6 million

3) Robert A. Iger
Walt Disney
US$51.1 million

4) Kenneth I. Chenault
American Express
US$42.8 million

5) Vikram S. Pandit
Citigroup
US$38.2 million

Source: The New York Times