Base salaries for chief executives continued to rise ahead of the annual inflation rate in 2008, with median increase of 5.2 percent on the previous year, according to Sheffield’s latest CEO Remuneration Survey.
The survey of almost 500 executives in the public and private sectors was conducted over December 2008 and January 2009. It shows that chief executives continue to receive historically high salary gains, with the median base salary now $176,800.
“But there are definitely signs this level of increase will not continue in the coming year,” according to Sheffield reward manager Jarrod Moyle. “Many organisations have imposed freezes on executive pay, and we predict much smaller overall increase of around two to three percent for 2009.”
Keeping remuneration in check may make good commercial sense in difficult economic environment, but Moyle warns there is risk that top talent could become disengaged, particularly when organisations are not able to deliver on performance-based components of an executive’s package.
Performance-based pay in New Zealand typically equates to around 19 percent of CEO’s base salary. When organisations fail to meet targets, such payments tend to be nullified or significantly reduced. That is shown in the latest survey, with the incidence of performance-based pay declining from 65 percent to 53 percent. And the median bonus payment of $36,670 was only 75 percent of the target payment. This is the lowest level of bonus achievement in the past nine years and could indicate the challenges chief executives face in achieving their performance targets in the current environment.
However, Moyle suggests the decline in performance pay cannot be totally attributed to financial underperformance, saying with prominent international examples of executives receiving bonuses, while their company is recording massive losses, New Zealand companies are reluctant to embrace at-risk pay.
“Many of our clients consistently say they don’t want to go down the path of corporate America, where up to 60 percent of pay can be at risk and excessive executive remuneration is all too common.”
Moyle expects there will be shift to the use of longer-term incentives, which encourage executives to stay and help see businesses through tough times even though they are unlikely to receive much, if any, bonus payment in the next couple of years.
“Despite rising unemployment, retaining key executive talent is now more important than ever, which means organisations must get creative with pay. Remuneration strategy is critical in this.”
The typical New Zealand CEO (according to the Sheffield CEO Remuneration Survey 2009) is
• aged between 47 and 58
• male
• has been in his/her position less than five years
• receives total package worth $265,000 in terms of total cost to the company (salary, benefits and incentives)
• earns median base salary of $176,800.
