executive salaries

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.

"No", says supermarket boss Tony Carter.  "I'm not going to tell you how much I get paid, and no, I don't have a private jet."

In fact, the chief executive of New Zealand's seventh-largest business, Foodstuffs Auckland, gets somewhere in the vicinity of $1.3 million a year.

Hardly likely then that Carter has the same dilemma as others about what he can - or can't - afford to spend his discretionary income on.  "Obviously a lot goes into investments, some is given away to charity ... but there's no tropical island."

A finalist in the Deloitte/Management magazine executive of the year contest, Carter is hesitant when asked whether CEOs are paid too much.  "Salaries in New Zealand tend to be lower than what's available overseas but, like a lot of positions in business, they are driven by the international market.  "I'm not saying we are not paid well or we should be paid more.  But I think even those people who earn what are perceived to be very high salaries in New Zealand could earn more overseas if they wanted to."

He said some under-performing bosses continued to get hefty annual pay rises but argued that much criticism focused on what a person earned rather than how they performed.  "That does hurt. Sure, you are fair game if you do a bad job, but simply just being disrespected for what you earn is unfortunate.  It sends the wrong signal to New Zealanders - we should be trying to be successful whatever we do."

SUIT-ABILITY
A survey of more than 500 chief executives reveals the typical boss is male, 52, has four weeks' annual leave and has been in the job for fewer than five years. He earns an average salary of $216,000 plus $111,000 in extras. He gets at least one of the following benefits: company vehicle or car allowance, telephone costs, club fees, medical insurance, superannuation. And he will have received a 5.9 per cent pay rise in the past year.

The Sheffield Chief Executive Officer Survey also says bosses in Auckland have higher salary packages than those in other parts of the country, with a median value of $297,670. Last year, 56 per cent of CEOs received performance-based pay.

It was worth about 14 per cent of their package, compared to 39 per cent overseas. Only 9 per cent of New Zealand CEOs are female.

Former Telecom head Theresa Gattung left New Zealand's biggest publicly listed company with $5.125 million in cash and 12 weeks annual leave owing.  The company's latest annual report, issued yesterday, shows Ms Gattung received a leaving payment of $3.9 million on top of her $1.25 million salary.

It included a performance incentive scheme of $1,525,000, a long-term incentive of $550,000 and special payments of $1,800,000.  The $550,000 was awarded on condition she does not go to a rival company. She also received $287,516 holiday pay.  Ms Gattung left Telecom in June after 12 years - eight as its chief executive - to take a break horse riding in South America.

She is yet to announce her next move, but just before her departure she told the Herald she had had all sorts of employment offers from around the world - "some more surprising than others ... but it's going to take some time and I want to give it some time, too."  Telecom also paid outgoing chief financial officer Marko Bogoievski a bonus payment to ensure he did not leave the company during the search for Ms Gattung's replacement.

The Sydney Morning Herald reported today that Mr Bogoievski received a $819,700 bonus to ensure he stayed on until the induction of Scotsman Paul Reynolds, who is due to take over Ms Gattung's old job at the end of September.  Mr Bogoievski also received a salary of $2.36 million in the year to June 30, Telecom's annual report showed.  Last month Mr Bogoievski, 45, announced he would leave the company in January after seven years as chief financial officer.

Acting chief executive Simon Moutter was given a special payment of $250,000 for staying on during the search for a new chief executive, on top of his annual salary of $1.71 million.  The company said the two executives were paid the bonuses because they had "critical knowledge and expertise essential to retain through a period of significant change".

Mr Reynolds will be paid a base salary of $1.75 million, plus a $1.75 million performance incentive each year. This may be topped up with a long-term incentive of up to $1.75 million in performance share rights.

- Additional reporting NZPA

Some directors got bumper pay rises in recent years and others got nothing - but the average still vastly outstripped rises for other workers.

A study by Institutional Shareholder Services found the average fee for a non-executive director rose nearly 25 per cent from $49,253 in 2004 to $61,416 last year.  Telecom and Fletcher Building chairman Roderick Deane was the highest-paid director last year, at $665,500.  Wayne Boyd was second with $392,961 for his role on the Telecom board and his chairmanships of Auckland International Airport and Freightways.  Third was Keith Smith with $345,000 for his seat on the PGG Wrightson board and chairing Skellerup, Warehouse Group and Tourism Holdings.

The rate of pay increase for directors over the period was more than three times that of inflation - based on a consumer price index rise of 6.9 per cent - and four times the 5.9 per cent growth in wages as measured by the Labour Cost Index.

But ISS lead analyst Martin Lawrence said there was a two-tier market for director pay.  "There are some big companies where director fees appear to be tracking the increases in Australia, albeit at a slower rate, and then there is a large group of companies, some big and some small, where director fees aren't increasing at a rapid rate," Lawrence said.

Of 177 directors who, for the entire period, sat on a board of one of the top 48 listed New Zealand companies surveyed, 20.3 per cent did not get a pay rise, and 12.4 per cent got a raise of at least 50 per cent, the study said.  "It is unheard of in most markets to have directors whose fees have not moved for three years," Lawrence said.

Australia and the UK had shown a substantial growth in fees after corporate collapses in 2001, with non-executive director fees for the top 100 listed Australian companies rising on average 81 per cent between 2001 and 2006.  Some New Zealand firms were following the overseas trend but not as rapidly.  "It seems to be explained by some New Zealand-specific facts, some of which are probably cultural."

Another was that New Zealand did not have the company collapses in 2001 and 2002 which increased attention to corporate governance.  International comparison on pay levels was more relevant for companies with overseas operations and markets, although Lawrence said he was startled by generally how much lower director fees were in New Zealand.

The best paid directorships were relatively concentrated.  Last year 28 directors on 35 boardroom seats each received at least $100,000 a year from a company. Five directors held two of these seats and one had three.

Many larger New Zealand firms did not pay the same as similar-sized operations in Australia.  "That seems to suggest there's some cultural factor that says because Australian directors are paid a lot doesn't mean that we will be," Lawrence said.

Some companies towards the bottom end of the pay rise scale had long established boards with powerful strategic shareholders, he said.  "In that kind of scenario director and executive pay doesn't tend to increase very fast."

The 22 directors whose pay rose by at least half between 2004 and 2006 were associated with seven companies - two of which had profit grow at a faster rate than fees and one of which had a drop in profit.  Fees in New Zealand had remained relatively constant as a proportion of operating cash flow and net profit, although pay did not seem to be necessarily related to company performance, Lawrence said.

"You could argue that directors fees shouldn't be directly related to performance, that they should be sufficiently divorced from the swings and roundabouts of the company so that they're not making decisions with an eye on what their fee will be this year," he said.  "You want them to be saying, 'Well this might hurt the company this year but in three years it'll be worth it for everybody involved'."

Des Hunt from the New Zealand Shareholders' Association said there had to be a relationship between directors fees and the average salary within the company and living standards.  "Living in Sydney is a lot more expensive than, say, living in Auckland," Hunt said.  Comparing companies was not a good guide, he said. "It's where a company is trying to head, the sort of skills required ... the performance of the company would have a bearing on how these people should be rewarded."

Institute of Directors chief executive Nicki Crauford was happy to have performance-based pay for directors, although it was hard to make it work.  "You're wanting directors to consider the business over time, in many cases a substantial period of time, because you want them to grow the business in the medium term," Crauford said.  "So short term financial targets can be misleading."

New Zealand directors were very poorly paid which was a concern.  "If we're going to want quality directors to run quality businesses then we have to pay them accordingly."

Top paid directors 2006

• Roderick Deane: $665,500 - chairman Telecom, Fletcher Building.
• Wayne Boyd: $392,961 - chairman Auckland International Airport, Freightways; director Telecom.
• Keith Smith: $345,000 - chairman Skellerup Holdings, Warehouse Group, Tourism Holdings; director PGG Wrightson.
• Rod McGeoch: $309,889 - chairman SkyCity Entertainment; director Telecom.
• Gary Paykel: $297,469 - chairman Fisher & Paykel Appliances, Fisher & Paykel Healthcare.

Changes 2004-2006

• 24.7 per cent rise in average director pay to $61,416.
• That's four times faster than the growth in wages.
• And three times faster than inflation.
• 12.4 per cent of directors given more than a 50 per cent rise.
• 20.3 per cent of directors saw no increase.

MEDIA RELEASE
For immediate release: Friday 6 July

Director’s Fees on the Rise But Still Lag Australia,
Survey Finds Board Fee Gaps Far Exceed Executive Pay Differentials

6 July, 2007

New Zealand’s non-executive directors are remunerated far below their Australian counterparts, despite receiving a healthy increase over the past year, according to a recently released survey by HR consultancy, Sheffield Ltd.

The survey found in comparably sized businesses in Australia, non-executive directors were receiving 50 – 150% higher fees than their New Zealand counterparts. In addition, the great majority of Australian firms offer share purchase or share option schemes as well as generous superannuation benefits.

Across its database of 259 New Zealand organisations, Sheffield’s annual Director Remuneration Survey found that over the past year the median base fee paid to non-executive directors was $27,861 and the median increase in those base fees was 15.6%. For board chairs, the median base fee was $52,000 with a median base fee increase of 14.3%.

Sheffield Senior Reward Consultant Sherry Maier says these percentage rises in director fees greatly exceed New Zealand’s 2006 pay increases for executives, which ranged between 5% and 6% medians, as identified in Sheffield’s annual executive surveys.  “These annual gains were achieved during a period in which virtually no increases were received by directors and chairs on the boards of almost 50 state and crown entities in our database, which suggests the private sector was making even more dramatic moves.  “The question is how these triple-digit gaps with Australia can be explained. Surely, nobody believes that Australian directors are working twice as hard, face twice the liabilities or are making contributions twice as valuable as their New Zealand counterparts in similar-sized businesses.

“In our view, besides minimal movements in the state sector, another factor that depresses fee levels is the different profile of directors here versus Australia. Unlike Australia, where a professionally trained, highly selective and well-paid director class has developed largely from corporate origins, New Zealand has traditionally tended to rely more on a large and steady supply of partially retired individuals who enjoy the involvement and service aspects of serving on boards, but who are generally not wholly reliant on the income. Such individuals are less likely to exert pressure to raise board fees to more appropriate and competitive levels,” says Ms Maier.

She says it is good news the gap between the fees paid in Australia and New Zealand is narrowing marginally - New Zealand’s 14% and 15% year-on year increases compare to the 9% to 11% increases experienced in Australia in 2006.  “But there is clearly still a long way to go.  “This also raises a related issue. We find the level of disparity in executive pay levels between the two countries – again between comparably-sized businesses - is inconsequential when compared to the enormous gaps seen in board pay. The often-cited 20% to 40% pay gaps with Australia do exist at general staff and middle manager positions, but we find that with Trans-Tasman executive mobility, such gaps have largely eroded for top corporate jobs.

“How can a New Zealand business justify the inconsistency of paying a top executive team at highly competitive Trans-Tasman levels to attract and retain the best talent, while paying substantially below regional market fees to the board of that same business?”  “Robust corporate governance is critical and demands that the many contributions of directors be valued properly.”

The survey also found the time commitment and workload expected from board members had increased, with 78% of boards now meeting monthly, up from 65% a year ago. Additionally, the typical median time commitment involved in a single directorship was 29 days per year, up from 25 days a year ago, with chairs’ time reported as approximately double that.

“Our respondents told us that an increasing amount of work is being done in committees – such as audit and remuneration committees – yet only a third of the surveyed organisations paid separate committee fees. We advocate the payment of committee fees as a best practice, since such ‘unbundling’ may better reflect actual time commitment and workload.”

Ms Maier says that consistent with past surveys, 75% of all respondents indicated growing risk exposure involved in directorships over the past five years, with a striking 26% reporting they had had a negative experience in just the past year.  “Boards are increasingly under media, shareholder and stakeholder scrutiny and operate squarely in the public spotlight. Everyone can easily name high profile cases where board performance and judgment has been called into question.”

Ms Maier says some strong correlations continue within this year’s data.  “Director fee levels correlate well with organisation size, especially revenues. Also, as in the past, chairs are consistently paid at twice the level of a non-executive director, reflecting the greater time, responsibility and accountability involved.”

She says one of the overall key survey findings was that only 17% of non-executive directors and 6% of board chairs were female. Board diversity is an area where the public sector has long shown notable leadership, where females represent 32% of non-executive directors.

Other key findings of the survey include:

• Geographically, non-executive directors of Auckland-based organisations are paid at the highest levels with a median of $35,500 per annum, compared to $25,000 in Wellington and $24,500 in Christchurch. For the first time, Christchurch is the lowest of all locations surveyed. Of course, Auckland tends to have the largest businesses, so this is an expected result.
• Given their typically larger size and complexity, publicly-listed companies are paid – not surprisingly - the highest median fees at $37,724, nearly 50% higher than the $25,000 paid by privately-owned businesses and $21,750 in the public sector.
• Non-executive directors on the boards of companies in the hospitality/tourism sector earn the highest base fees. Non-profit and educational organisations pay the least.

The Sheffield Director Remuneration Survey is in its third year. 259 organisations took part in the 2007 survey. 40% were publicly-listed companies, 31% were public sector organisations and 29% were privately-owned businesses.

ENDS

Sheffield sells this Survey in both CD-rom and hard copy format for $550 and $645 respectively.

Conflict of interest is a serious issue in the business sector. This is clearly demonstrated by Justice Raynor Asher's decision to overturn an Auckland District Health Board contract with Labtests because of Tony Bierre's conflict of interest.

The conflict of interest issue also arises with listed companies, particularly Guinness Peat Group (GPG). 

GPG's four executive directors, who dominate the company's board and remuneration committee, have received combined salaries, bonuses and gains on options of $74 million over the past five years.  They also had unexercised options worth another $48.1 million as at December 31.  This is an average of $30.5 million for each executive director.

These generous remuneration and options schemes create a potential conflict of interest even though the company believes "Sir Ron Brierley has qualities which are sufficient to ensure the integrity and independence of the remuneration committee in fulfilling its duties".

The huge increase in GPG's executive remuneration has occurred during an era when a UK corporate governance code has been introduced to reduce potential conflicts of interest at the board table. This Combined Code on Corporate Governance, is relevant to GPG because it is a British-registered company.

UK listed companies are expected to comply with the code, although it is recognised that departure from the provisions of the code may be justified in particular circumstances.

Several code provisions are relevant to GPG's executive remuneration. They include:

* The board should establish a remuneration committee of at least three members who should all be independent non-executive directors.
* No director should be involved in deciding his or her remuneration.
* Upper limits should be set on annual bonuses, and should be disclosed.
* The chairman should ensure that the company maintains contact as required with its principal shareholders about remuneration.
* Shareholders should be invited to approve all new long-term incentive schemes and significant changes to existing schemes.

The New York Stock Exchange also requires that all remuneration committee members should be non-executive directors.

But GPG's board is dominated by executive directors. The current board consists of Sir Ron Brierley (chairman), Graeme Cureton, Tony Gibbs, Blake Nixon and Gary Weiss.  Brierley has been classified as a non-executive director since 2000 - even though the Australian media still credits him with most of the company's successful deals.

The other four directors are executives.  Last year's annual report says the remuneration committee is Brierley, Nixon and Weiss. Thus, two of three committee members are executives.

GPG's board and committee structure creates a potential conflict of interest even though the company insists that no director is involved in deciding his own remuneration.

Most corporate governance codes recommend no executives be on the remuneration committee because they could put the interests of their fellow executives ahead of those of shareholders.

As well, Brierley has worked with Cureton, Gibbs, Nixon and Weiss for many years and has demonstrated in earlier situations, particularly at Brierley Investments, that he is not particularly forceful when dealing with strong personalities.

GPG's executive directors receive a combination of a base salary, cash bonuses, accrued leave entitlements and share options.  Base salaries paid to Cureton, Gibbs, Nixon and Weiss have risen by between 42 per cent and 108 per cent since 2002.

In 2001, GPG introduced a staff bonus scheme, with the proviso that "no bonus will be payable in respect of any year where net profits attributable to GPG shareholders do not achieve a 12.5 per cent return on opening shareholders' funds".

No limits have been put on these bonuses, contrary to the recommendations of the combined code, and these payments have accounted for the huge increase in executive directors' remuneration in recent years.

GPG's generous option scheme, which expires in 2012, was approved by Brunel shareholders before the 2002 Brunel/GPG merger.  Details of the scheme were included in a highly technical 226-page merger document.  This says that "when granting options, the board should specify objective conditions by way of performance targets, to be satisfied before options may be exercised".

The exercise price is determined by the board but may not be less than the higher of the nominal value of the shares (5 pence) and the middle market price per share on the last dealing date before the options are granted.

There is no evidence of any public statements regarding the targets executives have to achieve to be granted these options. The directors appear to have issued all options at the lowest exercise price allowed under the scheme.

How can GPG shareholders be sure the performance targets are realistic and the exercise price of the options is fair and reasonable when all of the directors, including Brierley, participate in the scheme?

The 2005 financial year was a bonanza period for GPG's executive directors because the company achieved a return of 22.3 per cent, well above the benchmark target of 12.5 per cent. The combined payment for the four executive directors was $22 million made up of: salaries, $4.5 million; cash bonuses, $12.7 million; accrued leave, $1 million; gains on the exercise of options, $3.8 million.

The 12.5 per cent measurement is highly questionable as far as an investment company is concerned, because gains can be unusually high in a bull market, particularly when opening shareholders' funds include subsidiaries and associate companies valued at cost.

Last year, GPG's return was only 4.1 per cent and no bonuses were paid. Total executive director payments of of $11.6 million comprised: salaries, $4.9 million; accrued leave, $100,000; gains on options exercised, $6.6 million.

As well as these generous remuneration schemes the four executive directors had 27.5 million ordinary shares as at December 31, now worth $63.3 million, and can receive 18 months pay if dismissed and two years' pay if GPG is taken over.

This issue is not about the total payments received by executive directors; it is about the way decisions are made on payments and options issued to them.  The decision-making process raises the possibility of a conflict of interest as far as GPG's executive directors are concerned.

Shareholders should be concerned because GPG's share price performance, relative to the ASX, NZX and London Stock Exchange benchmark indices, has declined in recent years as the payments to executive directors have increased.

The remuneration committee will probably be in a position to approve further huge bonuses this year, because the sale of the 19.4 per cent Australian Wealth Management stake on Thursday should enable the group to exceed the 12.5 per cent target for extra executive compensation.

Shareholders should also be concerned because the demise of Brierley Investments, the effective predecessor to GPG, was mainly due to an employee-dominated board that wasn't scrutinised by strong independent directors or shareholders.

Sir Ron Brierley is the darling of many New Zealand retail investors but no one, including Brierley and his highly successful GPG executive team, should be immune from shareholder scrutiny.

Disclosure of interest: Brian Gaynor is an investment strategist and analyst at Milford Asset Management and a Guinness Peat Group shareholder.  bgaynor@Milfordasset.com

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.

<A href="http://ads.apn.co.nz/ADCLICK/CID=0000212a98c5a19e00000000/SITE=NZH/AREA=SEC.BUSINESS.STY/AAMSZ=300X250/acc_random=39385427/pageid=29084740"><IMG src="http://creative.apn.co.nz/ORC0048_116_090307.gif" ALT="" width=300 height=250 BORDER="0"></A>

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."

COMMENT - DAVID HARGREAVES
Nothing gets up shareholders' noses faster. Executive share schemes have been a bone of contention for, well, it seems like forever.

New Zealand Exchange has unwittingly breathed fresh life into the issue through its now-aborted plan to assist chief executive Mark Weldon to buy shares on favourable terms, subject to certain performance targets being exceeded.

NZX can probably be justified in feeling a bit picked-on regarding the huge outcry its scheme generated.

The reality is that the NZX example only highlights what is happening within a number of companies. But it is useful that the broader issue is being debated again.

I've never liked options schemes, or assisted share buying packages – call them what you will.

The point, as I see it, is that they are not what they are supposed to be. Executive share schemes, the logic goes, act as an incentive for the bosses to achieve – since they get the shares only by meeting certain performance targets.

But there are problems. The targets are generally too easy to achieve. There is no real disincentive for non-performance.

If targets are not met, which normally means the share price has not hit a certain level by a certain time, then the executive simply doesn't take up the shares. No loss to them.

Then there is the matter of the amount of control over the company the executives may get – again through no real risk. This can lead to a conflict of interest for the executives if they then get approached by another party looking to take over the company.

And there are a number of other pitfalls. So, what is the answer?

The best way to offer incentives to executives in a way that benefits all shareholders is just cold hard cash.

Give the executives a solid basic salary and leave plenty of room for extra payments on a yearly basis according to clearly defined performance targets. This means that if the senior executives hit their straps and have a brilliant year they get plenty. If they don't, they don't. Shareholders should not object to executives picking up big bonuses – because it will mean they have increased the value of the company.

If the executives believe in the company and want to own shares to back that up – fine. Let them buy shares at prevailing market prices.

I have no doubt we will continue to see companies coming up with these schemes for their executives. Executives like them. It is up to the shareholders to be vigilant. To keep questioning the companies. And to strongly urge alternatives.

Public sector chief executives are now earning more in pay and perks than their private sector counterparts, a survey has found.

The Sheffield Human Resource Consulting survey found public sector chief executives' total packages were worth a median $255,000 last year, nearly $7000 more than their private counterparts.

National Party state services spokesman Gerry Brownlee said the survey was a damning indictment on the lopsided growth in the New Zealand economy, under which the state sector had ballooned, while the private sector was being suffocated.

Though he did not begrudge paying people what they were worth, Mr Brownlee said private sector pay rates were often linked to productivity "and on that score many of our public sector bosses are failing". He also called for more accountability, along private company lines.

State Services Minister Annette King said the organisations managed by public sector chief executives had a huge impact on the lives of ordinary New Zealanders, and it was essential to have the best people in those jobs.

Public sector chief executives had to appear annually before select committees to answer for their performance. "You cannot get much more accountable than that."

Sheffield's reward team leader, Jarrod Moyle, said pay for public sector chief executives had been increasing for several years, and overtook the private sector in 2005. Sheffield did not report the change then in case it was a blip.

The pay rates reflected the fact that salaries needed to increase to attract top talent to the public sector, he said.

Of the 540 chief executives surveyed, 293 were from the private sector and 211 from the public sector.

The survey found chief executives across all businesses and organisations received a median base salary of $181,000, up 5.9 per cent on the previous year.

Total packages, including benefits, ranged from $183,327 to $365,000, with the median around $255,000, up 4.72 per cent.

Auckland still commands the highest salaries, the median package for chief executives there being $297,670, compared with Wellington's $285,000. The proportion of chief executives receiving some form of performance-based pay had fallen to 56 per cent in 2006, from 69 per cent in 2003.

For those who received it, performance-based pay made up about 14 per cent of their package, compared with 62 per cent in the United States and 30 per cent in Australia.