Pay rises for top dogs clawed back

By JULIE MIDDLETON, Careers editor

Eight out of 10 top executives got pay rises in the year to September 1 - but the rate of increase is slowing, tempered by the disparity between CEO pay and company performance here and overseas, and associated shareholder disgruntlement.

The picture is drawn in the latest twice-yearly CubikSurvey of salaries, one of the largest in the country and used by companies as a benchmark.

This year bosses have been told that the proportion of top dogs getting rises reflects what happened in 2001 - but the amounts have been pulled back.

Increases in basic cash pay of more than 10 per cent went to 17.8 per cent of the people labelled "top executives" - base salary increase in this survey meaning the rise going to those who were in their job the entire year to September 1.

But double the number of executives received such rises the year before, says survey manager Kevin McBride.

"Boards are becoming increasingly aware of the degree to which their decisions about remuneration are being scrutinised by shareholders and external agencies," he says.

"The fact that they have to declare remuneration - certainly for listed companies - makes it easy for people to see what's going on, unless they get into creative accounting."

The other factor dragging down increases is the increasing proportion of packages containing at-risk bonuses and the rising value of these.

We are still behind trading partners, however: while at-risk bonuses might be worth 15 per cent of a New Zealand executive's haul, in Australia that is more likely to be 20 to 25 per cent, in the United Kingdom between 30 and 50 per cent, and, in rare cases, up to 100 per cent.

Business jitters after the twin towers' collapse on September 11, 2001, haven't affected managers' pay, says the report: top talent still costs, and it's still scarce in New Zealand.

Q. What do I need to know before I start reading?

The survey, done every six months, covers 20,800 people, divided for the report into "top staff" and "general staff". Between them are recorded 356 jobs in all areas.

A total of 502 companies contribute data to Cubiks; the average sample size among top executive positions is 81.

The sample does tend to skew towards large corporates - of the total sample, 89.7 per cent of companies surveyed have 51 or more staff.

But it is geographically reflective, with Auckland making up 39.8 per cent of the sample, Wellington 23.5 per cent, the North Island regions 20.9 per cent, and the South Island 15.7 per cent.

The table gives the base salary figures only, rather than a figure for total remuneration - which could add share options, bonus schemes, company cars, expense allowances, telephone payments, medical benefits and the like - to basic pay.

The value of the latter items can vary enormously depending on the industry and the level of seniority, but the survey proper does record all of that detail.

The median figure - the value right in the middle of an ordered range - is given as a few higher salaries can seriously skew a set of figures. Lastly, McBride reminds readers not to read statistics "in isolation. Look at things in the context of other records".

So who earns the most?

As you might expect, every single person in the survey with the job title "chief executive A" - that is, CEO of a company such as Air New Zealand or The Warehouse - earned more than $100,000, which is the third time the entire group has passed that threshold.

Of CEOs with the designation B - those running single-focus companies reporting to an internal or external board of directors, or perhaps someone else in a CEO-type position - 92.6 per cent got base salaries above the magic six-figure mark.

Those dubbed chief executive C tend to run charities or organisations dependent on membership fees or grants. Just 60 per cent of them got base salaries into six figures.

The proportion of chief executive As getting packages worth more than $200,000 has increased from 70.8 in September last year to 78.9 per cent the September just gone.

The same is true of the B-listers - 59.1 per cent of them haul in more than $200,000. The next tier down sees just 23.3 per cent getting more than $200,000.

Who got the biggest gains over the last year?

Overall, the median remuneration for top executives was 10.7 per in the year to September 1. The base salary movement for people in the same job for at least 12 months was 6 per cent.

Top staff still get bigger rises than general staff. And according to the report, since the base year of 1995, top executives' purchasing power has increased by 10 percentage points over and above that of general staff.

And that's not unfair, says McBride.

"Top executives are making strategic decisions that take the

company forward - or backward," he says. "Larger numbers of people at general staff level are sharing in the pool [of money]. It's not widely recognised that there's a higher proportion of general staff receiving cost-of-living type increases - executives often don't get that, with their pay tied to performance."

However, movements in real salaries for both top staff and general staff "are regularly higher than the movement in the Consumer Price Index", says the report.

Which industries were most generous?

If you are a top executive in electrical products, you got the biggest movements in base salary - 11.5 per cent. Behind were transport, haulage, storage, distribution and docks at 9.6 per cent, and health and social work at 8.4 per cent.

What's the story with bonuses?

In the year to September, 54.9 per cent of top executives snared a bonus - a slight increase on the year before. The average value was $23,124, from an average that was available of $29,513 - which shows that payment of bonuses are often related to performance. The ratio of bonus paid to bonus available now stands at 78.4 per cent.

As noted above, bonuses are not as common in New Zealand as elsewhere. But every year sees a slow but steady increase in the at-risk proportion of an executive's package, says McBride.

And company cars?

Fewer executives are getting company cars - just one in two top executives (49.8 per cent) gets to drive a car courtesy of their employer.

The shift away from cars helps minimise companies' administration costs and tax exposure. For example, the largest proportion of top executives - 17.8 per cent - had a car valued at between $47,000 and $77,800 - probably a Holden Calais 3.8, Ford Fairmont Ghia, a Mitsubishi Pajero or something similar.

That costs $19,500 in running charges a year, which includes depreciation and insurance, and a whopping $11,271 in fringe benefit tax and the GST that attracts.

However, that doesn't count the cost of prangs - and many a company accountant would testify that people don't drive quite so carefully when they're not liable for the bills.

Crunch the numbers a bit further and it appears that you are most likely to get a car in your package if you are a chief executive B; least likely if you are a senior HR executive.

What factors influence who gets what?

The economy impacts on a company's ability to pay, says McBride. Other influences are the cost of attracting talent - New Zealand is notoriously short of choice in some areas - and the cost of keeping it.

One of the keys to keeping good people is "hygiene", says McBride - "treating people as people rather than as a resource. Do you give them a sense of worth, do they feel their contribution is recognised and that they are rewarded?"

What about shares?

Share options aren't a huge feature of the pay packages of the top Kiwi executives - just 4 per cent got an issue of shares in the year to September.

The report says that the number of big company collapses in the United States, many of them involving dubious share schemes, has put New Zealand companies off following the same path. Share schemes are often used to encourage staff to take a longer-term organisational view, says the report, and while they are slowly increasing "it is a slow process".

And although more companies are making share schemes available, they aren't putting a lot up and it's a small number of people who are allowed to tap into them.

So what are the job prospects in 2003 for top executives?

This year is the year of the "generalist", declares McBride - the manager with broad and general skills.

"There are opportunities for people with a good broad understanding of business management who may well have come from another discipline - but they have cottoned on to the additional skills needed."

* The CubikSurvey is available only online at CubikSurvey. Direct membership inquiries to Kevin McBride on (04) 384-834 or kevin@mcbrideHR.co.nz.