Trend against performance pay grows

Chief executives gained their biggest base salary increase in 16 years in 2005 but continued to slip back on performance-related pay, a new survey shows.

The Sheffield 2006 CEO survey found that 54 per cent of chief executives received performance-related pay last year compared with 60 per cent the year before and 69 per cent two years ago.

Meanwhile, the base salaries of CEOs rose 5.8 per cent last year to a median of $170,000 - the largest movement in base salary since 1990.

Auckland continued to pay the highest chief executive salary packages at about $290,000, followed by Wellington at $265,000 and Christchurch at $225,000.

For those executives who did receive performance-based pay, it comprised about 16 per cent of their salary.

Sheffield reward practice manager Sherry Maier said the "alarming" trend of fewer executives receiving performance pay put them at odds with similar surveys conducted in other major economies.

"In the US, CEOs receive a whopping 62 per cent of their total package as performance-based pay," she said. "In the UK, this is 32 per cent and in Australia 30 per cent."

The only country that registered a lower proportion of performance pay than New Zealand was India at 14 per cent.

Less use of performance plans rather than executives simply missing their targets was the prime suspect for the drop in performance pay, Maier said.

"We do not know precisely. We would expect since we've just been through some pretty strong economic times that it would be just that people are eliminating the plans or not creating the plans to begin with."

A more conservative approach and a lack of confidence could be behind the trend reversal.

"Companies could be shying away from performance pay because of recent high profile bonus-and-share option scandals, poorly managed performance pay systems or efforts to retain employees by providing guaranteed salary."

It did not follow, however, that just because a larger proportion of salary was guaranteed executives earned more money.

"In fact the opposite is true," Maier said. "The lack of a performance component as part of pay packages in New Zealand severely restricts the earnings capacity of CEOs."

Industry sectors with the largest proportion of performance-based pay as part of the median total salary included hospitality, entertainment, primary industries, retail and wholesale.

Chief executives of publicly listed companies earned nearly twice as much as their counterparts in privately owned firms, although this was because of significantly higher revenues.

The overall remuneration package also included a car for 40 per cent of chief executives - an increase of 7 per cent on the previous year.

The survey collected data related to 544 chief executives, managing directors and general managers last year.


Cut-price Feltex chief

The pay of new Feltex Carpets chief executive Peter Thomas, who was appointed in November, is lighter than that of his predecessor, the company says.

Thomas' base salary is A$420,000 ($481,205) with a potential 80 per cent performance bonus - both less than former chief executive Sam Magill's pay.

Feltex has been granted a waiver by the stock exchange from seeking shareholder approval for Thomas' remuneration package.

Exchange rules required Feltex to seek the waiver as Thomas, who was a director before becoming chief executive, was a related party and his total pay could be seen as a transaction exceeding 0.5 per cent of average market capitalisation.