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Recession Slams CEO Pay

Contributor:
Fuseworks Media
Fuseworks Media

CEO pay flat-lined in 2009, according to the latest Moyle Consulting Chief Executive Survey. Slamming a five-year trend for increases of around 5%, the median increase in 2009 was 0%, meaning more than half of the survey respondents had no increase in their base salaries.

This is the first time in the 22-year history of the survey that the median increase has been below the CPI, says Moyle Consulting director Jarrod Moyle. In other significant changes:

Only 48% of CEOs received a base salary increase, compared with the norm of previous years of around 80%.

Of those who did receive an increase, the median was 5%, compared with 6.1% the previous year.

"The worst economic crisis in decades unsurprisingly had a dramatic impact on remuneration," says Mr Moyle. "Many organisations implemented salary freezes, with the highest paid individuals most likely to be affected."

CEO's weren't the only ones to suffer during 2009, says Mr Moyle. "The 2010 Moyle Consulting Salary Review Survey found only 61% of organisations made salary increases to general staff. For many, it was either not possible, or not a good look to increase base salaries. But it seems the more senior you are; the less likely you were to receive an increase last year."

Will things getter better this year? Mr Moyle believes there will be a slight thaw. "There's been speculation on whether there will have to be a massive 'catch up' this year. That is looking increasingly unlikely.

"The Government has indicated that it is satisfied with CEO pay levels in the public sector. We may see some modest movement in the private sector, but there is still a lot of caution around making big increases as organisations continue to carefully manage finances."

The slow-down in pay growth may be regarded as positive by those who consider executive remuneration to be excessive. But Mr Moyle has concerns. "While understandable in the current environment, there is a threat to retention, when we have a neighbour eager to cherrypick our top talent. Australia sailed through the recession, and I think New Zealand is at risk of an exodus of skilled people seeking higher levels of remuneration on offer across the Tasman as the pay gap widens."

The 2010 CEO Survey also shows that top executives' bonuses were down. The incidence of performance pay dropped from 53% in 2008 to 43% last year. This is not surprising given the economic challenges. More alarming is that only 55% of CEOs were eligible for performance pay, says Mr Moyle. This indicates that some companies have put incentive schemes on hold. There is some concern in executive ranks that no matter how well they performed, the global recession was such they were never going to hit their targets. "There's a sense that is slightly unfair - that their pay was affected by events out of their control."

Unfortunately, some believe that if the incentive scheme doesn't pay out, it must not be working and therefore it should be scrapped. In fact, it may actually be working exactly as it is intended, says Mr Moyle. Performance pay is designed to ensure that organisations hit financial targets, and if that doesn't happen, for whatever reason, it's not appropriate for the CEO to receive their full bonus payment.

Internationally the trend has been for a greater level of executive remuneration to be in the "variable" category rather than "fixed". "Companies are conscious about costs, and salaries are a big one. If they can shift more into the "at risk" component of an executive package, that should benefit the overall profitability of the business."

The Typical NZ CEO:

Personal Profile:

Is aged between 47 and 59, with a median age of 55 years.

Is male.

Has been in his/her position for less than five years.

Total Package:

Receives a total cost package worth $305,000.

Earns a median base salary of $200,000.

Earns most if he/she lives in Wellington, followed by Auckland, then Christchurch.

Common Benefits:

Probably has the full use of a company car, or receives cash in lieu

Probably is a member of an employer-subsidised superannuation scheme

Other:

Has four weeks' annual leave.

Has an annual salary review.

May have some form of performance-based remuneration (typically in the form of a bonus), receiving $40,000 per annum at the median, ie 18% of base pay or 13% of total cost.

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