Massive chief executive salaries stagger New Zealanders. How can one person, like the head of Fonterra, earn $8.3million? How can the chief executive of Dunedin City Council-owned Delta depart with nearly $1million? It all seems obscene.
When retail, kitchen and hospitality staff earn about $32,000 a year, society adopts a feudal tenor. In effect, fewer than 1% owns the riches, and they are able to lord it financially over the masses.
That is the way the market works, it is argued. Delta’s chairman, for example, has explained how the salary and benefits are not over the odds. And Fonterra’s CEO is not overpaid by international standards.
Yet, CEOs seem to receive bonuses for merely doing their job, regardless of whether that is well or badly. Yet, one United States report says in 1978 CEOs earned 30 times the average wage and the figure is now 276 times.
High executive pay is a headline issue around the West. Everywhere there is angst about how this has come to pass. How has capitalism — a system that has produced the goods and, generally, rewarded talent and effort — created such division?
If the system is working properly, it is based on supply and demand. The electricity industry in New Zealand is especially competitive and pays handsomely. Chief executives, in particular, can have a huge influence on company success. It would seem worthwhile for shareholders to pay big money to recruit the best.
Sport operates similarly. Footballer Neymar is reportedly on €36million (nearly $NZ60million) a year, and the United States NBA (basketball) average salary (mean) is $6million ($NZ8.3million). At the same time, thousands of professional basketballers in lower divisions barely make a living. The public does not resent All Blacks earnings, even as those at the bottom of the heap, who cannot quite make Super rugby, are on minimal money.
There remains, nonetheless, deep disquiet about a system in which it would appear a corporate class looks after itself. If CEOs are paid fortunes, directors’ pay does not seem so excessive. If the Remuneration Authority is generous in the public service, then its members also deserve substantial fees. If agencies scoping the worth of jobs make sure they do not undervalue positions, they too become part of the leapfrogging. Recruitment agencies paid through commissions benefit from higher salaries.
At least, increased transparency for public companies should be mandatory, and "confidentiality" clauses excluded.
For Delta resigning chief executive Grady Cameron, for example, we know $560,000 of his $980,000 exit package is his salary.
What about the rest? Are there bonus payments? How much is his superannuation entitlement? Likewise for Fonterra’s Theo Spierings.
His base salary is $2.46million and he has super entitlements. But how were performance payments for 2016 and 2017 (large parts of the $8.3million) of $1.83million and $3.85million derived and justified?
Ordinary citizens observe these outrageous fortunes with bewilderment.
They are destroying a culture where Jack and Jill were as good as their masters and mistresses. Perhaps large institutional shareholders could pressure companies to back off executive pay increases and the way they leapfrog upwards, beginning with chief executives. However, the senior members of these institutions are themselves part of the same high-paid class.
Proposals to link CEO earnings to multiples of average or minimum company pay sound attractive in theory but fail to account for wide variations in types of companies or to a free-market ethos.
CEO pay should be reduced and incentives devised to properly aim for long-term company success. CEOs should also not receive bonuses for just doing their job and short-term inducements can be damaging.
Just how sensible and restrained CEO remuneration can be achieved remains a major challenge.
