NZ Ceos Still Paid Less Than Aussies Despite Big Pay Rise
** Sheffield CEO Survey shows highest base salary increase in 10 years
AUCKLAND, 7 April 2004 -- "New Zealand CEOs may be enjoying one of the highest base salary increases in a decade but
Australian chief executives still earn more, largely due to the payouts they receive under performance programs," says
Sheffield Managing Director Ian Taylor, referring to findings in this year's Sheffield CEO Survey.
In its 17th year, the Sheffield survey is the country's largest and most comprehensive review of CEO remuneration and
includes data from 508 chief executives, managing directors and general managers of public and privately owned New
Zealand organisations, including the country's largest enterprises.
The survey shows a base salary increase of 5.2%, which is well ahead of the Consumer Price Index for the same period at
1.6%.
"Although encouraging, NZ is still a long way off achieving pay-parity with Australia, which impedes current market
efforts to establish greater Trans-Tasman job mobility. Consequently, New Zealand is likely to lose quality talent to
Australia's more attractive reward packages," says Mr Taylor.
A comparison of pay package structures reveals that Australian CEOs receive 30% of their total remuneration from
variable performance payments such as bonuses, incentives and profit shares. New Zealand CEOs receive a median of 14%
from these sources.
"Globally, CEOs consider the opportunity for performance pay a key component of reward packages as it offers significant
upsides. Some executives earn up to twice the value of their base salaries in this manner, sharing in the success of the
business," says Sheffield's Remuneration Practice Manager Sherry Maier.
"This year 86% of chief executives employed by offshore owners received performance payments, which resulted in a total
package 30% higher than executives on similar base salaries reporting to NZ owners," says Ms Maier.
"The pay difference illustrates the higher earning potential offered by a variable pay structure, and could be what New
Zealand needs to effectively compete for quality talent in a global market."
However, she recommends a prudent approach to adopting performance pay, given the justifiable backlash over recent
international profit share scandals and disparities between CEO packages and company profits.
"An Australian survey finding 80% of shareholders favouring a Bill to vote on executive pay packages confirms the high
profile of this issue. A well-designed pay structure that is transparent, undisputable and highly defensible is
essential.
"It's paramount that pay programs correlate directly between CEO performance targets and company results, and be robust
in the face of shareholder scrutiny," she says.
Ms Maier also advises that executives, directors and other stakeholders need to collaborate to design an optimal pay
structure that promotes wealth and value creation in the business, and enable the CEO to share in that created value.
"Where bonuses, incentives and profit shares reward annual achievements, longer term plans such as share participation
encourage chief executives to grow a sustainable business," she says.
Mr Taylor believes New Zealand is approaching a pivotal point where the next few years will test the strength of
remuneration structures to attract and retain quality talent.
"In the long run, I believe New Zealand organisations must grow the variable pay component to a level akin to
Australia's, which will help improve overall shareholder confidence and possibly attract overseas investors seeking
results-driven businesses. Getting this right is a major focus of Sheffield's remuneration practice," says Mr Taylor.
"The fact that studies indicate chief executives with stock ownership generate greater shareholder returns is proof that
NZ needs to develop a more competitive CEO reward structure," says Ms Maier.
** Other highlights from the survey:
Total remuneration packages received by chief executives ranged from $175,000 to $338,425 with a median of approximately
$236,308. The median base salary is approximately $167,493 with 81% of chief executives receiving an increase, up from
78% and 71% respectively in the previous two years.
The computing and telecommunications sector demonstrated the most support for performance pay with CEOs receiving 29%
(up 18%) of their total package in the form of bonuses, incentives and shares schemes. Last year, construction/property,
export/import and retail/wholesale led the way with at-risk payments.
Auckland CEOs continue to be the highest paid, exceeding their counterparts in Wellington for the second year in a row.
The pay gap also continues to widen with Auckland CEOs receiving 13% more (up from 2%) than Wellington executives.
Christchurch also demonstrated significant increases with CEOs receiving 9% more in total remuneration, falling just
short of Wellington chief executive earnings. These movements possibly reflect the number of corporate head offices
transferring away from Wellington.