Top chief executives' pay is back on the rise after several years of marginal growth, the Herald's latest CEO pay survey reveals.
Executives covered by the survey got a 12 per cent pay rise last year, taking their average earnings to $1,750,141 in the 2019 financial year. That was up from $1,561,229 for the previous year.
Leading the pack was Fletcher Building chief executive Ross Taylor, who has been at the helm of the building company since November 2017. Taylor was paid $5.3m for the 2019 year, made up of a base salary of more than $2 million, a long-term incentive worth the same, a short-term incentive of just under $1.1m and other benefits worth $106,500.
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• Revealed: What NZ's top executives are paid
• Revealed: What New Zealand's top CEOs are paid
In addition, he was given $1m worth of company shares - "a special retention arrangement" - set to vest in 2022, for what the board said was recognition of the "transition the company is going through" and the "important part the chief executive officer plays".
Technically speaking, the now-departed CEO of the country's largest company, Fonterra's Theo Spierings, received the second-highest pay out of all the executives surveyed - but that was not a full year's salary earned in the 2019 financial year.
Spierings, who finished up at the dairy co-operative in August 2018, was paid $4.67m - including performance pay realised in 2017, despite the company not paying out a dividend to shareholders in the 2019 financial year.
His final golden handshake dwarfed the remuneration of current CEO Miles Hurrell, who was paid $2.2m for a year's work. Spierings' last pay cheque from the company took his total earnings from Fonterra to $43m.
The survey covers the top executives at the 50 biggest NZX-listed companies for which information is available. Some property firms are excluded because their management structure makes it difficult to calculate CEO pay. Fonterra is listed because of its sheer size, and Herald publisher NZME is included in the interests of transparency.
Another departing CEO was among the top earners: former Air NZ boss Christopher Luxon, who received $4.28m in the last year of his almost eight-year tenure at the airline. And ANZ Bank's former chief David Hisco received $3.86m.
But among the bosses still in charge today, casino and convention centre chief Graeme Stephens of SkyCity wears the crown as one of the country's highest earner.
Stephens was paid just under $4m in the 2019 financial year, a 4.2 per cent increase on his $3.7m earnings recorded the previous year.
An equity-based incentive worth $1.2m also vested for Stephens in the 2019 year.
Jeffrey Greenslade, chief executive of South Island-founded Heartland Bank, earned $2.8m in the 2019 financial year - $1m less than ANZ's Hisco, despite the vast difference in the size of the two banks, though Hisco's pay was not for a full year.
Former Spark boss Simon Moutter received $2.8m in his final year at the company, and will receive $1.7m in short-term and equity incentives in 2020, but earned in the 2019 year.
Mainfreight chief Don Braid was paid $2.7m in the year, while Fisher & Paykel Healthcare's Lewis Gradon banked $2.6m. Adrian Littlewood of Auckland International Airport pocketed $2.4m and Genesis Energy's Marc England $2.3m.
In all, 15 chief executives earned more than $2m in the 2019 financial year, one less than recorded a year earlier. Another 15 earned more than $1m but less than $2m.
The average rise of 12 per cent is based on the pay of executives who received a full year's pay in both the 2018 and 2019 financial years. That increase far outstripped the pay rise received by the average Kiwi last year; according to the Labour Cost Index, that increase was 2.4 per cent.
Chief executives from six companies - NZME, NZ Refining, NZ Exchange, Scales Corp, Summerset Group and Vista Group - could not be included in comparisons and calculations as their reports for the 2019 financial year were not available at the time of publication.
Among those for whom information was available, the double-digit pay rise last year bucked the trend of relatively low increases in previous years.
Chief executive remuneration increased by 2.2 per cent between 2016 and 2017, and 3.34 per cent between 2015 and 2016. These were the smallest increases in the 15-year history of the Herald's survey, first conducted in 2005.
In the 2010 survey, four executives earned more than $5m. Spierings topped the remuneration ranks in 2017, earning more than $8.3m, and Former SkyCity chief Nigel Morrison in 2016, earning almost $7m.
Ten CEOs had pay decreases in the 2019 year, though these were not necessarily salary cuts. In many cases, they did not have incentive payments payable in the year.
Richard Wagstaff, president of the New Zealand Council of Trade Unions, said the $1.75m average pay for the surveyed executives last year was "excessive", but reflected a growing global trend towards "higher-paid people getting more than their fair share".
He said organisations rarely gave their staff a double digit percentage pay increase, and he believed such rises were not justified for CEOs.
"These very same people who are claiming and accepting these kinds of pay rises are denying their own staff the same pay rise.
"Chief executives pay themselves a lot more than they are rewarding their staff. It is inherently unfair - an organisation's performance is a result of all of the staff, not just one of the staff members," Wagstaff said.
"Across New Zealand last year there were some encouraging results when it came to rising pay for working people - we had the highest pay rises in over a decade, and we saw the share of the economy going to workers improving after over a decade of decline.
"A lot of the pay rises that went to people were the result of union agreements ... but for people outside of unions, your survey demonstrates that still, for many workers, their pay is going nowhere and it is going nowhere while their bosses' is improving."
Wagstaff believes incentive pay for executives is unnecessary, and abolishing it would bring CEO remuneration down to reasonable rates.
"Incentive pay can produce perverse outcomes and we saw that over the global financial crisis, where high-paid executives were pursuing very narrow incentives to receive pay rises regardless of the consequences for the wider economy."
Incentives also suggested that there was "a problem with motivation", he said.
"You have to wonder why these people need an incentive to get out of bed and give 100 per cent to their jobs - they shouldn't need additional financial incentives to put in the required effort."
Some company boards are already considering abolishing short-term incentives, out of fear they could be a "distraction" from longer term results, John McGill, chief executive of executive remuneration consultancy Strategic Pay, told the Herald.
He could not reveal what companies had been discussing this idea.
"I'm seeing more interest with boards around the longer term incentive pay as distinct from the shorter term. I've had a few board members make comments generally in the last year around getting rid of the short-term incentive pay; they are more interested in the longer term," McGill said.
"Stakeholders' interests are often longer term, so to have [just] the longer term remuneration is probably a good thing."
McGill said the way boards "design and manage the variable pay component" of executives' remuneration could be better managed.
"It's partially a governance issue, but also partially a technical issue ... the governance issue is there needs to be strong remuneration committees, the technical issue is good design. What you're going to reward people for and how they are going to get that reward."
He agreed that some executive pay packets were steep, given the level of effort needed to lead some companies.
"A lot of the very big public service jobs, you can argue that they are relatively lowly paid. The heads of DHBs, the bigger ones, they're responsible for well over $1 billion, these are very large organisations yet their pay is relatively low compared to those in the private sector - and there's usually no incentive pay."
Compared with pay packets overseas, remuneration for New Zealand executives was low for equivalent sized jobs, but packages still needed to be competitive to attract the right talent, McGill said.
Pay packets for some were higher as a way of acknowledging any reputational risk associated with moving from one company to another, he said. "The issues from the individual point of view is that there is risk for them.
"If you've got to a position where you are very senior in a large organisation, often, I think the rest of us forget it is seriously high risk."
Ten CEOs featured in the survey have now left the company - three of whom are among the country's highest earners. Seven years is considered the average time a chief executive works at a New Zealand company. The Harvard Business Review puts it at eight to 10 years in the United States.
New Zealand Shareholders' Association chief executive Michael Midgley said remuneration increases for executives should be in line with the returns received by shareholders.
Midgley said it "seemed a little bit early" for Fletcher Building boss Ross Taylor to be receiving the remuneration he had for, at the time, just under two years running the company.
Taylor, who took over as chief executive on November 22, 2017, was paid about $4.7m in the 2018 financial year for about seven months' work. He received a base salary of $1.2m, a short-term incentive of $1.4m and a long-term incentive of $2m. In 2019, he received $5.3m.
The association would be "keeping a very close eye on" Taylor's remuneration, he said.
Shareholders in Fletcher, as well as Air NZ and SkyCity, would be looking for company results to justify their chiefs' pay packets of over $5m, $4m and just under $4m, he said.
Midgley said the association had concerns over chief executives' pay not decreasing in line with the performance of the companies they led.
"It is up to the directors to set the terms and conditions of the CEO, and it is up to the directors to determine whether the performance of the CEO is up to scratch, and if it isn't, to do something about that."
