KEY POINTS:
The pay packets of top executives could be set to take a hit as companies feel the squeeze in tightening economic conditions.
The Herald's annual remuneration survey of 49 NZX 50, private and state-owned companies showed there was an average increase of 25 per cent in 2007 - more than three times the increase of the previous year.
But 2008 could spell the end of the golden weather for top executives who have short-term incentive payments linked to performance including new appointees Telecom CEO Paul Reynolds and SkyCity Entertainment Group's Nigel Morrison.
Reynolds, who joined Telecom in September, has the potential to earn up to $4 million a year but $1.75 million of that is linked to short-term performance and a further $1.75 million in share options is linked to long-term performance.
Morrison's $3.7 million remuneration package includes an annual performance incentive of up to $1.2 million and a long-term incentive of up to $1.2 million a year in options. He joined SkyCity in the first week of March.
Jarrod Moyle, reward practice manager at executive consultancy firm Sheffield, said it was likely performance payouts would drop in the next year if New Zealand was hit hard by recession.
"If this recession really kicks in there could be a drop in performance pay."
John McGill, chairman of remuneration and performance pay specialists Strategic Pay, said the last time executive bonuses took a hit was after the Asian crisis in 1998 and 1999 - a sign that the latest economic issues could also hit executives' pockets.
"Last time it slowed down as a result of the Asian crisis in 1998 and 1999. But it didn't come through in pay until 2000-01.
"However there are very mixed signals as to the health of the economy. It's hard to get a feel as to how it will affect us."
Shareholders Association chairman Bruce Shepherd said a downturn should affect CEO performance payouts but whether it happened was another question.
"There is a bit of a high water mark where companies don't like to go below the previous level. Even when executives don't perform companies tend to still pay them the performance fee because they are afraid they will lose them if they don't."
But Shepherd says companies shouldn't be afraid to let someone go if they aren't performing up to scratch.
"If they aren't performing it might not be a bad thing if the CEO moves on."
A survey of 500 top executives by Sheffield recently found that 10 per cent of firms who paid their executives performance fees still paid three-quarters of the fee even when the CEO did not meet performance targets.
