'Not proud' of pay gap between NZ CEOs and workers

Monday, 2 October 2017

Companies need to do a better job of explaining what a chief executive is paid for, says Michael Stiassny.

Chief executives are paid too much and companies need to 'wake up' to how significant the pay gap is between boss and workers, the former Institute of Directors president says.

Michael Stiassny said in a TVNZ interview on Sunday that the difference in pay between New Zealand company bosses and their staff was not right and he was not proud of it.

Fonterra boss Theo Spierings' $8.3 million pay packet this year was a 'little bit high', Stiassny says.

He called for companies to 'lift their social conscience' and reduce the pay gap.

'We haven't got it right. I'm not proud of that,' he said.

* Fonterra CEO Theo Spierings paid $8.32m this year

* Fonterra CEO's 'fat cat' pay shows need for action - Winston Peters**

'We are paying our chief executives a lot of money. But compared with the person who works at the reception desk or something, it is significant. We need to take account of that, and we need to find a way of making that gap smaller.

Details about Fonterra chief executive Theo Spierings' $8.3 million pay packet were released last week. It has since copped criticism, and sparked a debate about what is fair remuneration for the head of a New Zealand organisation.

Spierings' pay was included in Fonterra's 2017 annual report. The dairy co-operative posted an after-tax profit of $745m, down 11 per cent.

Stiassny said Spierings' pay was 'a little bit high' this year.

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

Otago University professor Helen Roberts' research on chief executive pay found their incomes had increased 228 per cent from 1997 to 2015. Pay for the average worker increased 91 per cent over that time.

Stiassny said chief executives had a social responsibility to not accept that much more than their lowest paid staff.

Company boards also needed to do a better job of explaining what a boss was paid for.

He said he expected companies to justify their chief executives' pay packet to customers from now on.

Shareholder return was not the only measure of performance, and that was typically not well communicated to staff and the public, Stiassny said.

'There are other things. There's culture. There's sustainability around both the environment and the workers' pay.'

Given the noise around Spierings' pay, Fonterra's board had not successfully communicated the reasons for its size, he said.

'If someone is being paid a significant sum of money and the board believe it is justifiable in an environment where farmers have less return, then it is the responsibility of board to communicate and to ensure that people, stakeholders shareholders, customers and creditors, understand and appreciate and agree with that.'

A Fonterra spokesman said Spierings' package included delayed pay from the freezing of his base salary in 2015, and long-term and short-term incentive bonuses.

Stiassny said shareholders needed to use their voice on the board and speak up if they were not comfortable with something, like chief executive pay.

'They should make the boards accountable to explain what's going on, in a way that makes them happy or unhappy, and then use their vote appropriately.'

New Zealand Shareholders Association chief executive Michael Midgley said shareholders should have a 'very loud say' on director and executive pay.

Midgley said he would not have thought Fonterra farmers, its shareholders, would stay quiet if they were not happy with Spierings' remuneration.

Fonterra has its own shareholders council.

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