Options taking the place of cash for CEOs

By Dita De Boni

The salaries of many CEOs in New Zealand have not increased dramatically from last year, but "at risk" payments such as stock options have soared in line with international trends, according to a recent survey.

Korn/Ferry International has released the results of its 1999 Board of Directors survey, painting a picture of top management trends in 123 high-profile companies on both sides of the Tasman.

Public company CEOs are receiving average packages of $501,000 a year, while those heading government-owned entities are receiving $411,000. Private company bosses are receiving, on average, $381,000.

Part of the reason for a standstill in compensation could be explained by a survey finding that 14 per cent of New Zealand CEOs had had their income reduced year-to-year, based on performance.

But the average incomes did not tell the whole story, Korn/Ferry International managing partner Annika Streefland said.

"The trend over the past three years is that the cash component of business sector payments have trended down, but private sector executives' share options have trended up - something public sector executives are not enjoying."

CEOs are not the only executives to receive "at risk " incentives. The survey shows that seven per cent of Australian and 17 per cent of New Zealand respondents had an incentive scheme in place related to their board's performance - and in New Zealand this scheme was entirely related to stock options.

By comparison, 42 per cent of United States directors and 72 per cent of inside directors in Britain were compensated with stock options. Annika Streefland said the main difference from last year was the continued fall-out from the Asian recession and global financial turbulence.

She said the last year had been a difficult one for companies in this country and they were tending toward more transparency and rigour when assessing the function of their directors.

"We are noticing that more companies are using the executive search process for finding board members, as opposed to appointing from a network of buddies," she says.

"Institutional investors like AMP and Tower are expecting rigour at the board level, which means overseas investors should be very confident in New Zealand companies."

Ms Streefland said that previously, many companies had not kept an eye on their strategic direction, focusing on year-by-year profitability instead of long-term shareholder growth.

"Strategy has come to the top of what companies consider most important now, unlike five years ago. This survey shows New Zealand is one of the world's leading countries in putting these responsibilities on boards of directors."