A growing number of New Zealand's chief executives are not fully achieving their financial targets but are still getting most of their performance pay, according to an executive recruitment company.
The 2007 survey by Sheffield of 501 chief executives, managing directors and general managers found the proportion not fully achieving targets rose from 28 per cent in 2006 to 43 per cent in 2007.
The proportion of chief executives missing all financial targets fell from 21 per cent to 10 per cent. Nevertheless, those who missed targets were still paid three-quarters of their targeted performance pay, according to the study. Those chief executives meeting all their financial targets fell from 51 per cent to 47 per cent.
Sheffield reward manager Jarrod Moyle said the results were in line with international trends, but raised concerns that the performance system was not working well.
Mr Moyle said it should also be taken into account that the target results were derived from reports from chief executives and from not their boards.
Business New Zealand chief executive Phil O'Reilly said that as targets would have been set well before the economy started to slow last year, the financial target data was fully expected. Mr Moyle said New Zealand was moving further towards international performance pay norms. In 2007, 65 per cent of chief executives were offered payments based on achieving financial targets, up from 56 per cent in 2006.
"While it may not be the panacea, if more companies had a stronger emphasis on linking payments to performance, it could contribute to raising New Zealand's productivity," he said.
Only 18 per cent of New Zealand chief executives' total package was dependent on performance, compared with international and Australian averages of 39 per cent. Mr O'Reilly said New Zealand's adoption rate of performance payments reflected the smaller scale and ownership of companies compared with many developed countries.
He agreed that greater use of performance pay was logical, offering significant potential gains.
The survey found that base salaries of chief executives in the public sector grew 5.7 per cent. Private sector base salaries grew 4.6 per cent. The median total package for public sector chief executives was $285,000, compared with $258,000 for the private sector.
