Performance pay for New Zealand's CEOs declines

Performance pay for New Zealand's CEOs declines, while Christchurch CEOs' pay packets now higher than Wellington.

The country's largest annual survey of Chief Executives' earnings reveals a significant decrease in the incidence of performance pay for New Zealand's CEOs.

Sheffield's flagship 2005 Chief Executive Survey - which includes data from 502 managing directors, chief executives, and general managers in New Zealand - reveals the incidence of performance pay for our CEOs has dropped significantly from 69% to 60% last year, after steadily trending upwards for a decade.

"While one statistic does not make a trend, this is certainly an alarming finding," says Sheffield Reward Practice Manager, Sherry Maier.

The decrease isn't just confined to CEOs, the survey shows. Last year only 75% of organisations made performance payments to senior management compared to 81% in 2003, and only 60% made payments to middle management and other staff compared to 69% the previous year.

Given the healthy state of the New Zealand economy, it's unlikely the decrease in the incidence of performance pay is a result of poor organisational performance, and therefore fewer CEOs achieving their performance targets, says Ms Maier.

"It may be due to fewer organisations offering any type of performance pay to the CEO. This could indicate that given the current talent shortage, organisations have eliminated performance pay and offered a guaranteed cash package in order to attract candidates to a vacant position or to retain a valuable leader.

"What is more likely is that CEOs and company directors have become disillusioned with hastily implemented and ineffectively managed performance pay plans. We speculate that for a number of organisations, performance pay may have been relegated to the 'too-hard' basket," says Ms Maier.

The 2005 survey also shows the decrease in CEOs' performance pay is most noticeable in the public sector, where the incidence has dropped from 48% in 2003 to 36% in 2004.

"This is understandable given the heightened public scrutiny these organisations face, especially in regards to executive remuneration, leading to the removal of these schemes altogether. While this may improve immediate public perception of executive pay, this is a regrettable trend. Performance pay is an invaluable tool for driving a high performance culture," says Ms Maier.

"We believe a properly managed performance pay system can add real value to both the bottom line of New Zealand organisations and CEOs' pay packets. There is potential for a win-win for all involved. Performance pay provides the essential link between organisational outcomes and individual objectives in a language we all understand - pay."

Meanwhile, another key finding of the 2005 survey is that Wellington's CEOs' total salary packages have slipped behind their counterparts in Christchurch for the first time.

The survey shows Auckland CEOs remain the highest paid in the country, followed by CEOs in Christchurch and then closely by Wellington.

Last year's survey showed Wellington's CEOs were the second highest paid in the country, followed by Christchurch. But over the past five years, Wellington has gone from the highest paying of the three cities to the lowest.

"Wellington's change in standing is a significant finding of this year's survey as it's the first time ever that Christchurch has surpassed Wellington. Since 2000, we've tracked Wellington CEOs pay packages' moving much more slowly than their counterparts in Auckland and Christchurch," says Ms Maier.

Ms Maier says Wellington naturally has a higher proportion of public sector organisations and this has an impact on remuneration for the city.

"If we look at the public sector as a whole, base salaries have kept pace and in some cases overtaken those of the private sector. However, the incidence and value of both benefits and performance pay has declined steadily," says Ms Maier.

"Wellington's high proportion of public sector organisations has felt this the most, which is evident in their smaller increases in total package remuneration over the last 5 years."

Other key findings in the 2005 Survey include:

- The CEOs' average increase in base salary year-on-year was 5.2%, which was identical to the percentage in 2003. The survey also shows that in recent years there has been a significant increase in the number of CEOs earning base salaries over $200,000.

- The median total remuneration for CEOs is $240,165 compared with $236,308 last year, representing a change of 1.6%.

- CEOs in the energy sector are at the top of the remuneration scale, followed by construction/property, heath, primary sector, and media. CEOs in the health and media sectors have recorded significant increases over the last year.

- For the first time, this year's Sheffield's CEO Survey examined the relationship between an organisation's market capitalisation and chief executive remuneration, consistent with international market practice. Not surprisingly, Sheffield's survey found that as with revenues and assets, CEOs' pay packages tend to increase in relation to the size of an organisation's market capitalisation.

Sheffield's CEO survey, which it produces and sells each year to the business market, is the first of a family of executive surveys rolled-out by the company annually.

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