Of all the shareholder governance issues, executive remuneration is the one that arouses the most passion but is often the hardest to evaluate or deal with. News that Fonterra's chief executive Theo Spierings received over $8.32 million, or $160,000 per week, for the year ended July 2017 has sparked a number of headlines and even some political comment.
This particular payment was comprised of a mix of base salary ($2.46m), benefits ($170k) and short and long term incentive payments ($1.83m and $3.86m respectively). While Fonterra is a cooperative and not a listed company (the Fonterra Shareholders Fund is a separate entity) their justification has followed the well-trodden route of employing consultants to conduct a benchmarking exercise and providing some vague commentary around performance targets. Objective measures that can be viewed by external parties, like the FSF share price or the Milk Price paid to farmers don't show any positive multi-year trends so it is hard externally to ascertain if the payment is justified or not.
In recent times we have also seen large packages paid to the departing heads of Fletcher Building ($2.94m on top of a $4.29m package) and Sky City (a total package including departure payments of $7.36m), in spite of performance issues at both businesses.
NZ CEOs' remuneration in our top ten listed companies has doubled over the last decade, even for some businesses that are natural monopolies - for instance the remuneration of the CEO of Auckland International Airport has trended from just under $1m in 2007 to around $3.3m this year. The remuneration of board chairman for top 10 businesses has also grown by over 6 per cent over the last 5 years.
Stakeholders in listed businesses will quite rightly look at these payments and ask a number of pertinent questions: