Top-paid chief executives take home more in a year than some will earn in 40 years

Thursday, 21 November 2019

New Zealand chief executives' pay has increased at more than double that of their workers over the past 30 years, prompting calls for harsher rules on what top-level management can earn.

An analysis of listed companies' chief executive remuneration shows that the best-paid New Zealand-based executive of a publicly-listed company was former Air New Zealand chief executive Christopher Luxon, who earnt $4.4 million in his final year in the job, $200,000 more than the year before.

He will be replaced by Walmart executive Greg Foran who is leaving a US$13m (NZ$20m) salary for an as-yet-undisclosed amount at the airline.

In second place was SkyCity's chief executive Graeme Stephens on $3.92m.

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He was followed by Spark's former managing director, Simon Moutter, who earnt $3.17m in his final year on the job, plus an additional $1m in shares that he will receive in 2021.

The highest-paid woman, BNZ's Angela Mentis, was in fourth place, on A$2.91m (NZ$3.08m), a reduction of 20 per cent compared to the year before as heat went on bank executives over poor conduct in Australia.

In total, there were 14 people earning at least $2m a year – and 15 if ANZ's acting chief executive Antonia Watson is included, who is now on a base salary of $800,000 plus incentives of up to 300 per cent of that.

Sky TV and Meridian also paid their chief executives more than $2m in the year but that was split across two people as the role changed hands.

Chief executives were paid a mix of base salaries, incentives and then additional perks such as shares.

Helen Roberts, a senior lecturer in the department of accountancy and finance at the University of Otago, has studied executive pay using data dating back to 1997.

She said, in 1997, the median total remuneration was $250,000 – or $388,090 when adjusted for inflation.

Now, it's $910,000, an increase of 233 per cent.

Over that same period, the median pay for all full-time workers increased from $26,400 a year to $52,000 – an increase of 97 per cent.

She said, when she started her research, only 10 per cent of listed companies paid salaries of more than $500,000 a year. That had lifted to 50 per cent.

'When you're publicly held, employing people who front-face for the company every day and are being paid what the CEO earns in a week, the question that needs to be asked is that pay justified?'

She said there seemed to be an element of greed in the highest salary packages, particularly when they came with additional perks.

'It's time for us to look at the pay gap. We need to start thinking about what's happening in  New Zealand.'

In 2013, the United States' Securities and Exchange Commission proposed a pay ratio rule that would require companies to disclose the median annual total compensation of all employees, and compare that to the amount given to the chief executive.

'However corporate lobbyists have kept the rule from being implemented arguing that such a rule would be too costly and burdensome to calculate and wouldn't provide meaningful information to shareholders.'

Richard Wagstaff, president of the Council of Trade Unions, said the share of the economy going to working people had dropped in recent years.

'Middle-class and working-class people are struggling to hang on to what they had decades ago while senior managers and executives are doing very well. That's been the trend or the last three or four decades.

'Everyone works their best, works their hardest. Every job is critical and some of the toughest jobs in society – a security guard outside a WINZ office – are paid the least. The majority of our top executives are much more comfortable in their jobs, they're easier to bear and they are paid many times as much.'

Wagstaff said high chief executive salaries were allowed to continue around the world because the group of people earning them was relatively small and had the relationship and connections to negotiate directly with the boards of the company.

Even a big salary was usually a small amount of total company spending, he said. 'Paying them a lot doesn't make a huge deal of difference in a large company … paying the entire staff more can amount to millions even if they only get 1 per cent.'

Wagstaff said it had got to the point where 'something needs to be done'.

Susan Watson, deputy dean of the University of Auckland business school, was unconvinced more transparency would reduce pay.

She said when listed companies were first compelled to disclose what their high-earners were paid, it had had the opposite effect.

'It went up rapidly.'

She said that was probably because organisations wanted to appear to have a desirable and sought-after chief executive.

She agreed with Wagstaff that the relationships held by the chief executive would keep salaries high. Pay was usually dictated by remuneration committees made up by people on the board who worked closely with the chief executive.

She said it would probably take international change to prompt anything different in New Zealand.

Roberts said the argument that companies needed to pay international-level salaries to attract top people was challenged by the return of people such as Foran.

'I don't think that captures the full truth of what the job entails or why they would be attracted to do the job.'

There are also high-earners in the public sector.

ACC head Scott Pickering earnt $841,000 in the most recent financial year, and Matt Whineray, chief executive of the NZ Super Fund earnt $1.065m.

The $2m club

Air NZ - $4.4m 

Sky City - $3.92m

Spark - $3.172m

BNZ - $3.08m

Z - $2.196m

Genesis - $2.351m

Chorus - $2.068m

Westpac - A$2.285m

ASB - $2.216m

Fletcher Building- $2.05m

Fisher & Paykel Healthcare - $2.678m

A2 - $2.086m

Mainfreight - $2.761m

Fonterra - $2.226m