KEY POINTS:
New Zealand's top executives' pay has soared by an average of 25 per cent over the past year.
The 2007 increase on 2006 is more than three times the growth recorded in the previous year and was boosted by a number of high level departures.
Of the 49 NZX-50, state-owned and private companies analysed in the Weekend Herald survey, three of the eight highest paid executives had their pay packets topped up by one-off payouts made when they left the company.
Former Telecom CEO Theresa Gattung received the biggest boost, with a one-off special payment of $1.8 million because her contract ended early and for a revised restraint of trade agreement which was favourable to the company.
The added payment brought her remuneration up to just over $5.4 million for 2007 - the highest amount a publicly listed CEO has received and more than $2 million above last year's highest remuneration package paid to Westpac's Ann Sherry.
Departing SkyCity Entertainment Group chief executive Evan Davies also easily overtook Sherry's 2006 high, with a settlement payout of $1.77 million, catapulting his remuneration package for 2007 to over $4 million - an increase of more than 200 per cent.
Hellaby Holdings managing director David Houldsworth received a one-off severance payment of $425,250, pushing his remuneration up 68 per cent to $1.59 million and putting him in the top 10 highest paid executives for 2007, despite the company making a $9.8 million loss.
The only departing CEO not to receive a one-off payment was former Westpac NZ & Pacific CEO Ann Sherry, whose total remuneration package went up by 8 per cent to $3.43 million.
But even putting aside the high-paid executives who left their companies the average increase was 14 per cent - a big jump for those at the top.
Of those who remain in the job, Warehouse boss Ian Morrice topped the survey, boosted by a one-off incentive bonus of $1.665 million. He is followed by the top paid executive at unlisted dairy co-operative Fonterra, which is likely to be CEO Andrew Ferrier.
In total 16 executives earned over $1 million, up from last year's 13, boosting the average pay from $1.056 million to $1.217 million - about 25 times the average wage.
Jarrod Moyle, reward practice manager at executive consultancy firm Sheffield, said the jump was quite high compared with a similar survey it recently undertook for the top 500 executives, which showed an average 5 per cent increase across the board.
"Fourteen per cent is quite high - it's hard to say what might be behind that. But there has been a higher base salary increase over the last three years - a lot of the pressure stems from the present skill shortage, placing added pressure on remuneration."
John McGill, chairman of remuneration and performance pay specialists Strategic Pay, agreed an executive shortage was key to the increases, although he also said it was high compared with a survey of between 100 and 150 executives undertaken by his company in September, which found an average increase of 6 per cent.
"It's not a situation that is well understood - but it's not just boardrooms giving themselves big pay rises. There is a shortage of these people - it is hard to get the best senior managers. If you look at the more high-profile companies, when they are well managed they can produce very good results, like Air New Zealand and Fletcher Building. The demand for people far outstrips the supply."
However Shareholders Association chairman Bruce Sheppard said any pay rise had to be taken in context with the company's performance.
"In isolation pay increases don't shock me - if their pay has gone up and the company's performance has increased then who cares? But if the performance has gone down and the pay has gone up - that's a concern."
Sheppard strongly believes executive pay should be linked to the performance of the company whether the target is to increase profits, revenue or decrease staff churn.
According to Moyle the number of companies using performance pay as part of remuneration is increasing but it is still only a small part of a CEO's salary. Of the 500 surveyed in the Sheffield report 65 per cent used performance pay - up from 56 per cent in the previous year but on average only 16 per cent of a CEO's package was related to performance, much lower than the global average of 39 per cent.
Moyle believed the reluctance was related to the tall poppy syndrome as well as a lack of resources and knowledge.
"New Zealand is made up of a large percentage of small- and medium-sized businesses, which means they often lack the knowledge and confidence to put in a performance pay system. Another obstacle is people are a little more risk-averse, they would rather have things a little more safe and secure and they don't like talking about performance.
"We are not as open about celebrating success. We don't like to see people being excessively wealthy in New Zealand. It rubs us the wrong way. But I believe there is still room for change."
Moyle said increasing the performance pay component was also another way for New Zealand executives to gain pay parity with Australia.
"For companies of a similar size I believe our CEOs' salaries are comparable. But performance pay can be where New Zealand CEOs miss out because they have a much lower level of exposure."
A Sydney University study has found the reported annual remuneration for a chief executive of a top-100 Australian company is almost A$4 million ($4.5 million), with Macquarie Group boss Allan Moss topping the table with A$33 million.
Contact Energy is one company which strongly believes in using performance incentives. It uses short-term incentives as well as long-term incentives and rewards its executives with both cash and options.
But it is one of the few top companies that breaks down its CEO remuneration package into all its components. Many do not even reveal what their top executive earns because under company law they only have to name how many employees earn an income in bands of $10,000 over $100,000 unlike in Australia where companies have to reveal the salary packages of their top five executives.
Twelve of the 49 companies did not name their top executive's salary - a figure consistent with last year, though some of the companies are different.
The second largest listed company, Fletcher Building, has also stopped listing its chief executive's remuneration since Jonathan Ling took over the top job from Ralph Waters.
It's another area Sheppard has been campaigning to change but he says it is just one of many it has asked the NZX to look at.
McGill believes over time New Zealand's disclosure levels will come closer to Australia's but he says it's an area that many companies are reluctant to change.
"It will be very uncomfortable for individuals. But putting people in bands is not enough."
Shareholders need to know what their executives are earning and how that remuneration is made up so that if performance drops they can question why a chief executive is getting that pay rise, he says.
Rakon chief's salary rockets 400pc
Most of us would be excited to receive a 10 per cent pay rise in one year let alone one of more than 400 per cent - but that's just the jump which Rakon boss Brent Robinson received in his pay packet last year.
Robinson's remuneration leaped from $105,980 in the year to March 2006 to $552,757 in the year to March 2007 - an increase of 422 per cent and the biggest boost received by an executive in the Herald's 2008 survey of 49 top New Zealand companies.
While the increase may seem over the top to the average man on the street, Robinson's pay rise reflects the company's shift from being private to publicly listed and brings him in line with CEOs of listed companies similar in size.
Rakon, which makes quartz crystals for use in telecommunications and GPS devices, floated on the New Zealand stock exchange in May 2006. The 2007 annual report remuneration figure is the first year of Robinson's tenure as head of a listed company.
According to the NZX, Rakon had a market capitalisation of $177.5 million on March 6 - when the research was begun. Those nearest in size include clothing retailer Hallenstein Glasson Holdings on a market cap of $190.8 million and New Zealand's largest listed tourism operator Tourism Holdings on $167.9 million.
In 2007 former Hallenstein Glasson managing director Cliff Kinraid received $414,000 although in the two previous years his salary was over $500,000.
The highest paid person at Tourism Holdings for 2007, which we assume to be CEO Trevor Hall, earned between $520,000 and $529,000.
NZX boss Mark Weldon had a remuneration package worth $899,375 last year even though the New Zealand exchange's market cap was $163.8 million - smaller than Rakon's - and its net profit of $8.7 million was also lower than Rakon's.
Rakon's after-tax profit more than doubled between 2006 and 2007 from $4.8 million to $10.6 million. At the same time earnings per share increased from 5.5c to 9.9c.
Robinson did not wish to comment on his pay but Rakon chief financial officer Graham Leaming said the change was a reflection of adjusting to a CEO market rate at the time Rakon moved into public ownership.
Jarrod Moyle, reward practice manager at executive consultancy firm Sheffield, said it was not uncommon to see a big rise in salary for a top executive when a company went from private to being publicly listed.
"In this case the previous package was very low probably due to the fact that he had a significant ownership stake and was receiving remuneration from the shareholding. It's not that uncommon when a managing director who starts the business doesn't pay themselves a full salary but just takes dividends at the end of the year."
ANZ National CEO Graham Hodges saw the biggest cut in his pay packet, down 24 per cent from $2,816,211 to $2,135,090 although he remained the sixth most highly paid executive of those surveyed.
