Data helping ramp up exec pay

Many firms want to set executive salaries at or above median level.

Consultancy firms are playing a role in driving up executive salaries through providing the market data companies can use to justify pay packets, says a veteran of the remuneration consulting industry.

David Shannon retired last year from full-time employment after a 25-year career as a consultant, but continues to work for Auckland-based Strategic Pay on contract.

Remuneration consultants help determine the market rates of pay through surveying the salaries for various job types across many organisations and building up databases.

Shannon said he had encountered clients who put pressure on him to give the higher salary recommendations they wanted and he had been "subtly invited" to stop working for some large public and private firms because he could not stay silent on his views about executive pay.

"I've been in the position where the employer has had me look over stuff, I've come back with the report and they've effectively said, 'No, you'll have to come back with something better than that or we won't be seeing you again'."

Shannon's views diverge from those of other remuneration consultants, who often defend the scale of salaries paid to top bosses.

"Why did they pay Paul Reynolds $12 million [last year] at Telecom? I'm sure they didn't have to," he said. "There is certainly no New Zealand market data to support that figure."

Shannon, who specialises in consulting for not-for-profit firms, said companies that wanted to pay big salaries to executives could ignore consultants' recommendations and "pick out the data they want" to suit their requirements.

"Market data is available and it can be used to do what you want," Shannon said. "There are consultants who will find the data to make [clients] happy."

He said consultants' data showed where the median pay level was for a particular job and there was an "overt movement" by many employers to ensure they paid salaries "at or above median".

As other employers raised their salaries to meet the median the median itself rose, driving consultants' data up at the same time.

"If consultants did not publish salary surveys, there would be no sound way to compare salaries with the market, median or otherwise, and this constant ratcheting up to match or surpass the median would not occur - at least not on such an overwhelming, widespread scale," Shannon said.

The Business Herald's annual survey of top listed company and state-owned enterprise bosses shows the average chief executive pay packet increased by almost 76 per cent between 2004 and 2011, from $852,341 to $1.5 million.

But Strategic Pay managing director John McGill said blaming remuneration consultants for rising salaries was shooting the messenger.

"It's a bit like trying to blame the statistics department for inflation - all they do is produce the CPI ... they're not responsible for prices increasing and I would suggest that we're not responsible for salaries increasing," McGill said.

Shannon said most pay consultants were above board and strove to be impartial in their use of data.

Addressing the Nuplex Industries annual meeting this month, Shareholders Association chairman John Hawkins said remuneration consultants were partly responsible for the "ongoing pay spiral".

"They [consultants] always recommend at the top of the comparator group, which in turn lifts the average and so it goes."