1506399977205 - Fonterra boss’s $8.3m salary thrusts CEO pay in the spotlight

Fonterra boss’s $8.3m salary thrusts CEO pay in the spotlight

Huge chief executive salaries are back in the spotlight after Fonterra revealed its boss, Theo Spierings’ $8.3m pay package. 

Otago University professor Dr Helen Roberts’ has watched the divide between the average income of New Zealanders and that of chief executives steadily rise over the last 20 years. 

She has been comparing the movements in chief executive’s annual pay to that of the average worker since 1997.

Using NZX disclosures and Statistic’s New Zealand’s Income survey, Roberts found the incomes of chief executives (adjusted for inflation) have increased 228 per cent from 1997 to 2015, while the average worker has increased 91 per cent over the same period.

READ MORE:
* Fonterra CEO’s ‘fat cat’ pay shows need for action – Winston Peters
* Fonterra CEO Theo Spierings paid $8.32m this year
* Fonterra’s profit falls, revenue rises and farmers’ returns lift

 

“[Chief executives are] on a much larger base salary, so they’re going to have a lot more money overall,” Roberts said.

In 1997, chief executives earned nine times the median worker salary and in 2015 that ratio had increased to 17 times, Roberts said. 

Another signal of a growing gap was the proportion of chief executives earning over $500,000. In 1997 this was 10 per cent of all chief executives, and 18 years later 56 per cent of New Zealand chief executives earned over $500,000.  

The average salary for chief executives in 2015 was $1.06m, while the average New Zealander earned $57,117.

Roberts said she was working on updating the data with 2016 figures, but median wages, which are not usually made public by companies, would make for a more accurate comparison because they are not skewed by the executives large salaries.  

She said companies disclosed their median wages privately to consultant companies that in turn used their large database of these figures when they were hired to advise on what chief executives should be paid. 

Strategic Pay chief executive John McGill has been a remuneration consultant for for 30 years said he recently began providing a summary of any remuneration report he does for a company to the NZX, and more transparency was inevitable.

“We will be able to read more about what the remuneration policy is; where they pay in the market; what the key performance indicators are for the chief executive are.”

McGill said, “[Chief executives] are aware that they’re very highly paid in the jobs that they do.”

His company’s surveys have found chief executives would be prepared to accept lower levels of pay in different circumstances. 

“The very good chief executives often move between sectors and, from my experience, are quite happy to accept lower levels of pay in different markets that pay in different rates.”

Fonterra boss Theo Spierings has this week been declared New Zealand’s highest paid chief executive. 

Though the large gap between the average worker and a chief executive is a global one. 

In Spierings’ home country, the Netherlands, chief executives are paid 172 times the average salary, the ninth highest in the OECD. 

In South Africa, chief executives are paid, on average, 541 times more. India has the next highest ratio at 483 times, followed by the United States at 299 times.

Spierings​ earns the equivalent of the salary of a New Zealand MP, $160,000, in a week. 

And for one MP in particular, the large payout has hit a nerve.

New Zealand First leader Winston Peters called Spierings’ $8.31m salary a “fat cat payout”.

“Here’s a boss who is paid $2.46m, but who forwent a $1.83m bonus during one of Fonterra’s worst ever payout years.

“Now, during what is an average season, he has not only won that bonus back, but secured a $3.85m cherry on top with another $170,000 for superannuation.

Peters’ want to give shareholders the power to “hold the directors and bosses to account”.

But journalist turned inequality expert author and researcher Max Rashbrooke told Guyon Espiner on RNZ that would be unrealistic.

“I think it’s hard to expect much to come out of shareholders.

“Because of the nature of modern capitalism, most shareholders are not actually that deeply involved in the companies they own and so to expect them to do anything much is unrealistic.”

Rashbrooke said he didn’t know what the figures were for New Zealand, but overseas the average length of time a person held onto a share in a major company was around six months. 

Chief executive salaries were lower, around the 1950s to the 1980s when marginal top tax rates were high, Rashbrooke said.

Rashbrooke said the public tended to get upset at the release of a chief executive’s salary because it lacked an “instinctive sense of fairness”.

“Is another human being worth 200 times another one?”

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