Westpac

A parliamentary committee was today urged to tread carefully when making decisions to try and combat the spiralling problem of housing affordability.

Figures presented to the commerce select committee showed the gap between wage earnings and house prices in New Zealand continued to increase and was outstripping other western countries.

However, Westpac chief economist Brendan O'Donovan said he expected the heat to disappear from the market over the next few years and warned the Government against taking drastic measures to try and influence the situation itself.  "Essentially our housing correction is a matter of when, not if," he said.

Mr O'Donovan said he was aware the Government was anxious to ensure home ownership was within reach to all New Zealanders but urged caution in terms of introducing subsidies for new buyers or disincentives for investors.  For every potential solution there were always consequences further down the line, he said.

"Be wary of people coming in with solutions, because there is no one solution, there is no silver bullet."

Mr O'Donovan said the housing market was cyclical and information at hand pointed to prices flattening and wage growth continuing.  "Affordability will not be the issue it is now in four years time."

He said there was a multitude of reasons why house prices had been driven up, including favourable interest rates and tax rules and the growing ease of being able to obtain credit and the flexible terms that went with it.

Other suggestions were myths, including one that investors had been scrambling to buy property.

Mr O'Donovan said only about 8 per cent of home owners had extra properties that were purchased for investments.

Labour MP Shane Jones said it appeared part of issue was New Zealand's infatuation with owning a house and considering it to be a bullet-proof and high return investment.

• Figures sourced by Westpac show household debt in relation to disposable income rose steadily from about 50 per cent in 1990 to 180 per cent in 2006.
• Relative house prices in New Zealand have over the past several years outstripped Australia, Britain and the United States.
• Affordability is over 40 per cent lower now than the historic average.
• Since 2001 house prices in relation to income generated have increased by 45 per cent.
• While house values have increased dramatically around most of the country, it has led to a decline in comparable rental yields. Figures show rental yields on residential property have dropped from about 7 per cent per annum in 1998 to just over 3 per cent now.
• An international survey of home ownership rates shows New Zealand is about on a par with average rates in eight other western countries. New Zealand had a 68 per cent ownership rate between 2000 and 2003, compared to Ireland (80 per cent), Germany (40 per cent), Britain (68 per cent), Australia (71 per cent) and the United States (68 per cent).

- NZPA

Hellaby Holdings managing director David Houldsworth's pay packet has been something like a rollercoaster in the past two years but he wouldn't have it any other way.

Houldsworth took the sharpest proportional pay cut in the Business Herald's 2005 survey of executive pay but also got the steepest rise last year. His remuneration dropped by nearly a third from $939,000 in 2004 to $632,000 in 2005 before surging almost 50 per cent last year to hit $946,000.

The dramatic swings are the result of a link between pay and company performance, with half of Houldsworth's remuneration last year being performance pay.

According to a study of 504 New Zealand bosses by human resources consultancy firm Sheffield, performance pay made up only about 14 per cent of the total salary packages of those who received it, compared with about 62 per cent of US chief executives' pay.

Houldsworth's pay packet stood out even when compared with those given by larger firms, which commonly had a 30 per cent performance-related element.

Jarrod Moyle, Sheffield reward team leader, said the pay of chief executives of larger local companies was similar to same-sized organisations in Australia, although some New Zealand managers shied away from talking about performance.

"Many New Zealanders don't want to separate themselves or put themselves ahead by becoming overtly wealthy. If you contrasted that with the United States ... more is always better and that's quite acceptable."

A Business Herald investigation of 56 of New Zealand's largest companies found that chief executives got an average pay rise of 8 per cent last year, with an average pay packet of more than $1 million.

Westpac's Ann Sherry topped the podium on $3.1 million, followed by one employee at Fonterra - probably chief executive Andrew Ferrier - on $2.9 million and then Telecom's Theresa Gattung.

However, Guinness Peat Group's New Zealand executive director Tony Gibbs' salary 2005 salary of $5.3 million - not available for last year's survey - would have put him well ahead of the pack.

This year's top six, at the time of writing, were rounded out by Fletcher Building chief executive Ralph Waters also on $2.9 million, ANZ Banking Group's Graham Hodges on $2.8 million and The Warehouse boss Ian Morrice on $2.3 million.

Linking executive remuneration to company performance sounds like a no-brainer but there is debate on how to best structure performance pay and whether it even works.

Houldsworth said he met the targets needed to get his maximum bonus last year because of Hellaby's profit performance.

Performance pay was used throughout the group, sometimes for other employees as well as the chief executive.

"Certainly we believe the best way to get performance from people is to make them responsible and remunerate them appropriately for success," Houldsworth said.

"And really that's profit-driven and no other measure. We're very much against the concept of linking it to share price and external factors.

"The share price may well increase or decrease as a function of profitability but it can also go up and down for totally extraneous factors ... therefore we don't believe that the chief executive should either benefit particularly or in fact be penalised."

Hellaby Holdings used cash rather than share options to reward performance. "It's pretty simplistic really and we think that simple works best."

Alternative schemes could average out payments over time but that could mean receiving extra pay in years the company failed to perform, Houldsworth said.

The potential for fluctuating pay was not a cause for concern, he added. "I'm happier when it's a good year but I'm very happy with the overall scheme anyway, I think it's quite appropriate."

However, Mark Harcourt, professor of strategy and human resource management at Waikato University's Management School, said more performance pay did not necessarily lead to better performance.

"If you were giving chief executives an extra 20 grand and some years they got it and some years they didn't they might complain and bitch about that far more and react negatively to it than if they never got it in the first place."

Some pay structures could actually attract the wrong person for the job.

"Options can induce executives to act more conservatively, ironically, because so much is riding on how well the share price does. Executives in some cases, particularly in a rising market, can choose more conservative but more certain investment returns," Harcourt said.

"The shareholders may prefer a higher average return, risk is less of an issue with them because they've diversified their portfolio into potentially several stocks and assets."

In more extreme cases stock options could encourage fraud.

"It's just been too tempting ... They [executives] cook the books to make the firm look more profitable or at least look like profit is increasing."

Fraudulent action could boost the share price and increase the payback on stock options.

But most people faced with a regular pay packet were generally trustworthy and would not shirk responsibilities, Harcourt said.

Stewardship theory explained why executives receiving a more basic pay packet still performed.

"[It] emphasises goodwill and general willingness and motivation ... to do the right thing, to do a good job and to take the long-term interests of the firm or the organisation into account in making decisions."

A failure to take fairness into consideration when setting workers' pay could also hurt the business.

The Business Herald survey found the average chief executive remuneration for New Zealand's largest companies was more than $1 million last year - more than 27 times the average pre-tax pay of wage and salaried employees of about $38,500.

"If anything it's probably more relevant here [in New Zealand] because this is a society that's not keen on status differences," Harcourt said. "This is a society where the tall poppy syndrome predominates.'

But Bruce Sheppard, Shareholders Association chairman, said New Zealand needed to get over that.

"We need to have an aspiration society, where we aspire to do better and we aspire to create great businesses that generate wealth for all stakeholders," Sheppard said.

Sheppard wanted more uncapped performance pay that was robustly structured and aligned with long-term creation of shareholder wealth.

However, company boards could over-complicate the process, he said.

"If the person you are paying it to doesn't understand how it works and what the performance hurdles are and what he has to do ... and if what he has to do isn't measurable and capable of being reported real time, guess what? It doesn't work."

Sheppard wants performance rewards to be aligned across management teams and spread throughout organisations.

"How do you get a team of horses to all run in the same direction? You put the same bag of hay in front of them."

The association also wanted to see increased disclosure of executive pay.

The Business Herald investigation found 13 companies did not specifically disclose the pay of the chief executive other than to list the number of employees in remuneration bands above $100,000.

"The reason we need it is if you know how your executives are being paid you know what the business' strategy is," Sheppard said.

The use of share options as an incentive was anathema to the association, he added.

"[For example] we want to give you [a] $100,000 incentive so we're going to give you $1 million in shares you don't have to pay for for a period of time and based on some bullshit calculation that equals $100,000 a year of value," Sheppard said.

Sheffield's Moyle said performance payments in New Zealand were mainly paid annually in cash but he didn't rule out the use of share options.

"[If] one of the primary objectives of the organisation is to improve shareholder value then shares or share options do have their place," he said.

Greater disclosure in annual reports would go a long way to changing the nature of executive pay.

Listed Australian firms had to provide a detailed breakdown of the top five executives, including their names, position and pay.

The Australian system, which was more the international norm, provided greater accountability and information to shareholders.

"It's a cultural issue that we don't like to discuss what we're being paid."

Over the past four-and-a-half years Ann Sherry has carved a swathe through Auckland business with her big smile, cool clothes, adventurous taste in art and books, firm opinions - and her massive salary. In any company, male or female (but especially female) Sherry's annual $3 million stands out. The only woman bank chief in New Zealand, she has often made headlines.

She has also achieved some significant milestones for Westpac which, when she arrived, was just another Australian bank. During Sherry's watch it has moved head office from Wellington to Auckland (not her initiative), introduced probably the most generous maternity leave in the country (three months on full pay for mother, father or both), is about to roll out an employees' child-care scheme, and managed the intensely bureaucratic process of taking Westpac from an Australian branch to a New Zealand incorporated bank - a process required by our Reserve Bank to combat criticisms about Australian banks creaming off New Zealanders' hard-won savings.

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She has also taken some harsh criticism for her handling of the banking side of the business. The Independent Business Weekly in November, called her tenure here a "relative disaster" and although it is impossible to find an Australian analyst prepared to openly criticise her, off-the-record comment suggests most analysts "didn't think that highly of her financial performance".

What has not made the headlines is that Sherry has built her brilliant career while raising her son, Nick, now 30, who has Down syndrome.

Despite circulating rumours about her future, despite being zealously guarded by two PR managers, one of whom tapes our interview, 52-year-old Sherry is relaxed, smart and inclusive. She laughs a lot and admits her mistakes.

She also speaks candidly about Nick and the struggle she and her husband, Michael Hogan, went through after he was born. The couple, "surfing buddies since we were tiny tots" and then in their 20s, didn't want him to go into an institution as was then the norm. They also struggled with the decision about whether or not to have another baby. "We had genetic testing," explains Sherry, "and although neither of us carried any recessive genes the odds [of another compromised baby] stepped up quite a lot. In the end we decided 'why don't we just help Nick be the best he can be'."

Which, right now, means a return to Westpac Head Office, Sydney. Although Nick has a full-time job with Harris Farm fruit markets in Sydney, a girlfriend, and places in Special Olympics swim (New South Wales) and basketball teams, the minder who has lived with him while his parents have been in New Zealand has to return south. Their son needs them home.

"He's come over three or four times a year," says Sherry. "He's jumped off everything in New Zealand - the Sky Tower, the harbour bridge, done the luge in Rotorua ... " But, she adds with a smile, while he could probably get a job in Auckland, the girlfriend "is not replicable here, easily.

"You do what you do," she continues. "We made a choice very early: having a child with a disability doesn't mean you give up on your life. We've had compromises along the way but you work out what you want your life to look like - then make it happen."

All of which suggests that Sherry always imagined herself in this gracious office, the size of a small city apartment, with a view over the waterfront so close you could almost take a dip in the Sapphire Princess' swimming pool. But she never wanted to be a banker, which, as a girl, she thought was the ultimate in dull: an industry full of dreary older men in cardigans. "I'd grown up in an extended family with a medical or paramedical slant," she says. Her parents were both pharmacists in Gympie, Queensland, and she trained as a radiologist.

Next came university, marriage to Michael and the birth of Nick. Within a month Sherry was back at her lectures in politics and economics, with carrycot and her appetite for bucking against Joh Bjelke-Petersen's right-wing policies as strong as ever. A decade later, after backpacking through Africa and India with Michael and Nick, a stint working in London in industrial relations ("I got jobs for people coming out of prison"), she joined the Status of Women Department of the Prime Minister and a year after that, in 1994, took on human resources for Westpac.

Sherry soon pushed the bank into offering paid maternity leave, which resulted in the number of women returning to the bank to rise from just over 50 per cent to 94 per cent. In 2000, she was appointed chief executive of Westpac Melbourne and two years later was promoted to CEO of Westpac New Zealand. At the time, Westpac chief David Morgan called her "a great agent for change" who set an excellent example to other staff on achieving a work life balance.

Another major achievement at Westpac Melbourne suggests the kind of backbone she developed while insisting that Nick was accepted into mainstream schooling. When she arrived, the culture included company Christmas parties dominated by men who took their pants off and slipped sex toys into the Christmas present pile. "You can change a culture three ways," says Sherry. "One, behaving differently yourself. Two, addressing individuals who are icons of bad behaviour. Three, celebrating success in the new way."

She chose option two and sacked one of the ringleaders. Things changed very quickly.

Along the way Sherry collected the Order of Australia for corporate governance and diversity management and an Australian Government Centenary Medal for expanding banking services to the Aborigines of Cape York whom she helped via hundreds of Westpac staff who were dispatched to the Cape to help with things such as business plans and family budgets.

She is, says former Australian High Commissioner to New Zealand Allan Hawke, an Australian role model and a brilliant public speaker. "I remember her standing up in front of 230 of the top leadership in defence wearing a bright orange dress. She looked at them towards the end and asked: 'You work it out for yourselves. Who are they going to work for - you or me?' It smacked them right between the eyes."

By the time the New Zealand job came up, Michael, who works in public relations and communications, was happy for his wife's career taking precedence. He set up the New Zealand offices of CPR (Corporate Public Relations), she set up Westpac's new head office.

The day we meet, Sherry wears a beautifully fitting, supple, grey-on-grey pinstriped suit, large pearl-and-diamond drop earrings echoed by another, even bigger pearl on a gold chain around her neck and a small silver Westpac fern on her lapel. Although she seems to be hiding rather than flashing them, she also wears two chunky diamond rings on either side of her wedding band.

But it's the personality, the sky-blue eyes, the easy way with words that is most arresting. As Michael Moynihan, CEO of Random House and member of Sherry's bookclub says, "she has a really lively mind and has genuinely engaged in New Zealand. Over the years we've made sure we've given her the kind of things she should read - it's one of the ways you can come up to speed about a country."

Only two questions make her uncomfortable: Her immense, often quoted, pay packet and her failure to get into the mortgage wars of 2004. As she says, "I was brought up not to talk about your own money." She then points out that her $3 million is linked to the earnings of her Australian-based colleagues and is not what she's paid. "What I cost - rent, travel and superannuation come out of that" - and a third of her remuneration is in shares "which means I only get value if the shares perform well."

You mean you don't get a dividend but you do get the shares?"

"No, I don't get anything."

As for the mortgage wars, she readily admits they made a mistake. While their major competitors were cutting rates to the bone to win more customers, Westpac stood on the sidelines. At the time, Sherry admits, she did not realise just how price-sensitive the New Zealand market is. The misjudgment cost Westpac dearly. Although the policy was hastily reversed, the bank took a big drop in mortgage sales. It took several years to recover.

It is this stumble, say banking analysts, that may have upset Sherry's chances of going back to the top job at Westpac Australia when David Morgan retires at the end of the year. Indeed, one rumour suggests she was fired.

"Hah, no!" yelps Henry Ford, Westpac's general manager of consumer banking. "I haven't heard it and I wouldn't entertain it if I had. If she'd been fired she certainly wouldn't have had a leading hand in choosing the next CEO. She wouldn't have announced her departure six months before she left, she wouldn't be a significant part of the transition process - and she certainly wouldn't be going back to Westpac in Australia."

Why did Sherry take the job in New Zealand in the first place? "Plenty of challenges," she says with a gleam in her eyes. Westpac wasn't doing that well, it had issues with the regulators, was moving head office from Wellington to Auckland. She loves the idea of living and working in different countries - and her family responsibilities would have prevented her moving too far.

"There's a lot of learning, energy, excitement - though a lot of my colleagues didn't think that about New Zealand but ... " another huge laugh. And although people questioned her endlessly about the move to what they called "Starship New Zealand", she is glad she did it. "I said I loved going to the land run by women."

She leaves more women on the Westpac executive (three out of seven including her). A quarter of senior management and 60 per cent of all management are women. The bank itself has moved from being one of the two least-satisfactory banks in the country (with ANZ) to our overall favourite bank/financial provider (with ASB).

She remains on the Australian/New Zealand leadership Forum and VISA Asia Pacific, but she will "unfortunately" leave her roles with The New Zealand Institute and as chair of the Sir Peter Blake Trust which she helped set up.

Her new role with Westpac will be announced in the next couple of weeks.

However, it is Nick who dictates where, and for how long, Sherry works: where her huge energy is spent. One week at a health farm "to detox" and she will take up her responsibilities again.

"You do what you do, but it doesn't mean you give up your life."

The nicest woman in banking returns to Australia this month after five years heading Westpac in New Zealand. But will Ann Sherry stay a banker or take up a career in politics? Greg Bearup reports.

For once, Auckland's summer weather is behaving, and men in deck shoes are strolling down to the harbour.

"Highest boat ownership in the world," says the proud cabbie as we pull up in the driveway of a grand timber house overlooking one of the yacht-dotted bays.

Up the drive, I can hear a woman belting out Kiss' trashy anthem I Was Made for Lovin' You.

"I just can't get that song out of my head," says a beaming Ann Sherry as she throws open the door, a towel turbaned on her head and lipstick plastered on her big broad smile – even at this early hour.

The song is a remnant from her office's 80s-themed Christmas party the night before, where she made an appearance as a Dynasty-era Joan Collins, complete with big hat and taffeta frock.

Ms Sherry, 52, Westpac New Zealand chief executive, may be one of the highest- paid executives in New Zealand ($2.7 million a year) and one of Australia's most successful businesswomen, but she is no bland banker.

Born in Gympie, Queensland, where her parents were pharmacists, she rebelled at school, she says, about hem lengths and the like.

At university in the 1970s she railed against everything that Joh Bjelke- Petersen's Queensland stood for. She marched for abortion, against uranium mining and against the ridiculous ban on marching itself.

She worked as a union organiser, a prison social worker in the borstals of Britain, and as a senior bureaucrat in the Victorian public service in the areas of childcare, health and women's policy. She was then head-hunted during Paul Keating's prime ministership to lead the Office of the Status of Women.

Just 18 months into one of feminism's dream gigs, she sensed that federal Labor's time had run out and jumped to Westpac, rising to become its most senior Australian female executive and pushing through reforms under which the bank became the first to offer paid maternity leave.

In 2002, she was sent to head the show in New Zealand and the Pacific.

Somehow she managed all this and maintained a family life. She married Michael Hogan a week before her 21st birthday and 18 months later, while still at university, gave birth to a boy with Down syndrome.

The marriage is still going strong and son Nick is now 30 and has a full-time job, a girlfriend and a passion for the Sydney Swans.

People like and respect Ann Sherry, and it is difficult to ferret out those who don't. Even union leaders who dealt with her during the difficult merger of the Bank of Melbourne and Westpac in 1997 – which resulted in 1400 job losses and more than 100 branch closures – describe her as frank, pragmatic and honest.

"She always delivered on what she promised," says Paul Schroder of the Finance Sector Union. "I would rather be told to get stuffed to my face, and know where I stand, than have someone go behind my back – and with Ann you always knew where you stood."

One of Mr Keating's former senior advisers, Mary Ann O'Loughlin, says she would make her prime minister in an instant – "not because she is a sheila, but because she would do a great job".

"To understand Ann," says one of her friends, "you only have to look at how she dealt with Nick, the way she and Michael dealt with it. Can you imagine having a Down syndrome baby while at university? Everything after that has been a breeze."

Later Ms Sherry and I are sitting in a lounge at Auckland's airport, about to fly to Christchurch for a staff presentation, and talking about the birth of her son.

She is wearing a pinstriped suit and pearls, with a couple of super-sized diamond rings on either side of her wedding band. Her wavy blonde hair is swept back and she has alluring blue-grey eyes. She laughs a lot but for the moment is serious.

"It had been a perfectly normal pregnancy and it wasn't until Nick was born that they whisked him away and said, 'Oh, we think there is a problem.' I was devastated – it was as if the sky had collapsed."

The young couple were pressured to put their son into an institution – it was the done thing in those days. "But I thought, 'Why would you give your baby away?' "

Amid all the chaos, and with friends and family giving conflicting advice, she had a crystal-clear moment in which she realised that all she wanted for her baby was for him to be the best he could be and to be given every opportunity to thrive.

"We had to flip from pain and sadness to say, 'Okay, what does this mean?' People sometimes describe me as tough, but it is those sorts of experiences that teach you what tough is."

A month after Nick was born, she was back at university, often with him in a bassinet in classes.

"I didn't want to be sentenced to a life of servitude, so it was a matter of finding a balance where Nick had care and was stimulated and had opportunity and Michael and I could also have a life."

They took Nick backpacking through Africa and India when he was a toddler, and fought to have him admitted to regular schools. On his second day at preschool, a group of mothers confronted her at the school gate, saying, "Your child doesn't belong here."

"I turned and glared at them and said, 'He belongs here as much as your child does.' I was so angry during that period, wanting to fight for Nick's rights."

Nick has grown into a confident and likeable man with a good sense of humour. Ms Sherry calls him her greatest achievement.

When she got the job in New Zealand, the family were sitting around discussing all the options and Nick declared he didn't want to go.

"I want to breathe my own air," he said. "Ha," laughs Ms Sherry, "He'd been watching too much bloody Oprah."

A friend and carer who had helped out with Nick for many years moved from Melbourne to Sydney and into their house in Balmain to be flatmates with him and to allow Ms Sherry and Mr Hogan to move overseas.

"It will be funny when we move back, as Nick has grown up a lot in those few years. He's learnt how to cook – a chef from one of the pubs has been giving him lessons – and is buying his own food, although budgeting is still a problem."

Ms Sherry is returning to Australia at the end of this month to an as-yet "undefined role" at Westpac because Nick's carer is moving back south.

Ms Sherry is constantly in the news and sits on various national boards and committees, and people like what they see.

David Tripe, director of Massey University's centre for banking studies, says Ms Sherry has greatly improved Westpac's image in New Zealand as well as staff morale. "Bank staff everywhere can be made to feel like lepers," Dr Tripe says. "But if you have a CEO who is out there with a positive image and who takes a genuine interest in the staff then that makes you feel better as an employee."

But what about her management of the business? Generally it is seen to have been fair, though she was criticised for failing to enter into a fierce home mortgage rate war in 2004, when Westpac lost market share.

Ms Sherry fronted up to the market, at a meeting of analysts, and accepted blame – an unlikely admission from a chief executive these days.

"People know when things aren't right," she says. "You are better off admitting the mistake, and working on the problem, otherwise people will think you are a liar. There was no dressing it up – we made a mistake."

I ask her if she thinks the bad publicity about the mortgage war may have affected her chances of becoming Westpac's Australian chief executive when David Morgan retires at the end of this year.

"It could have, yeah. But at the end of the day it is not an issue I control, so it is not an issue I angst about."

But when I ask if she actually wants the job, she is silent for a moment, then lets fly with her trademark laugh. "Well, if you are offered a job, that's when you would decide if you want it."

So would she be willing to hop into the political saddle? In the three days I spent with her, the only time she became uncomfortable was when this subject was raised. She folded her arms into a defensive position across her chest.

"There is almost an indenture system in Australia with politics where you have got to come up through the ranks," she says, deflecting the question. "John Key, who has become the leader of the National Party here after being a really successful merchant banker offshore, decided that he wanted to come back to New Zealand and that he was interested in engaging in politics. He got a seat, he got a run and a couple of years later he is the leader of the party."

She has been working in a country where the prime minister is a woman, as are the chief justice and the chief executives of numerous corporations. Her take is that being a small economy "not reliant on digging stuff from the ground", New Zealand cannot afford to ignore talent.

"There is an issue in New Zealand about being the best that you can be," she says. "It cannot afford to be closed to Maori success and it cannot afford to be closed to Polynesian success and it cannot afford to be closed to women." Australia, she believes, is still pretty much a closed shop both for women in business and women in politics.

Later, she sends an e-mail saying she is "too long in the tooth" for a career in politics.