A chief executive exodus has hit a range of top NZX listed businesses, with four bosses of large companies announcing their departure since November.
SkyCity CEO Graeme Stephens left on November 30 with only a few days’ notice and no word of where he’s going.
The previous day, Kathmandu said chief executive Xavier Simonet would leave in six months to work for the Australian public service.
And again on November 30, Sky Network Television said its chief executive Martin Stewart was leaving the company to return home to Europe after just 21 months in charge.
Earlier in November, Summerset Group chief executive Julian Cook said he would step down after more than 10 years with the company, seven as CEO. Summerset chairman Rob Campbell then announced this week he was retiring from that role.
The exodus has again brought into question the vexed issue of what CEOs are paid, although not necessarily that they should get more.
Campbell himself, a former trade unionist, has been vocal on the issue.
He says CEO salaries are often out of whack with peers and colleagues and short and long-term pay incentives should instead be base salaries.
“The problems I think are two-fold,” said Campbell, who chairs SkyCity Entertainment Group, Tourism Holdings and Summerset Group – that latter role ending early next year.
Campbell stressed this was his personal view and he was not speaking about any particular company or in his role as chairman of the businesses.
Many senior executives were paid salaries which did not reflect the complexity or skill of their role compared to their peers or other people working in their business, he said.
“I think this is as a result of many years of salary reviews which are what I refer to as ‘executive escalators’ – each company and its senior executives think they deserve pay in the top half,” Campbell says.
And he indicated it’s a vicious circle.
“They review the market which comprises companies and their senior executives who all think the same thing. The result has been inevitable escalation. The executive pay advisers are the complicit enablers in this addictive process,” Campbell says.
“Second, a practice has developed of complicated long and short-term incentive payments rewarding activity which in fact should be a core component of the base salary or, worse, which reward a series of narrow outcomes. These incentive structures are supposed to align interests but in practice have lined pockets,” he said.
He wants to see senior executives well-rewarded for the fulfilment of their roles within a broad view of stakeholder interests “and not as the outcome of a lolly scramble”.
Max Whitehead, managing director of employment consultants Whitehead Group, said he was surprised about a $4m annual pay difference between ex-SkyCity CEOs Nigel Morrison and Graeme Stephens. It was unusual that one company would pay one CEO so much less than another and raised questions, he said.
“That is a significant drop and I’d suggest the one getting so much less would be asking questions. It could be different skill levels or previous experience,” Whitehead said.
Whitehead said it was unusual for four CEOs to leave NZX companies in November.
“With Covid, their potential to earn a bonus could be low or zero so they could be feeling vulnerable and there’s a good chance of them moving into a more secure role where they are less reliant on that bonus scheme,” Whitehead said.
But Whitehead disagrees with Campbell on bonuses because he said it gave them a reason to drive harder, “so I like that idea. While they gain the benefit of the bonus, they also have to take the rough times.”
Morrison got $6.4m in his final year. Stephens left on $2.4m.
Last month, the company announced an executive exodus of Stephens, chief financial officer Rob Hamilton and chief marketing officer Liza McNally. Stephens left on November 30.
Chief operating officer Michael Ahearne became CEO immediately on November 16.
Campbell subsequently told an analyst briefing on the day that although he appreciated it might appear sudden, Stephens’ role had been under discussion for months.
“While it’s a quick change, from the board’s point of view it’s very much about stability,” Campbell said last month. “This business has been through a lot in the last couple of years and we’re very concerned we have a good stable transition. While it seems like a short time period to external people, it reinforces stability within the business.”
Campbell declined to say what Ahearne would be paid but said that would be declared in the future in company documents.
For his part Stephens wouldn’t be drawn on the pay issue.
“This thing has affected everyone negatively and I’m no exception to that and I don’t expect to be,” Stephens told the Herald a few months ago of the $3.9m-$2.4m drop.
“We had big salary sacrifices in the last quarter of the 2020 financial year. The good news is the money we are sacrificing we put towards the hardship fund which is helping out others of our staff negatively impacted,” Stephens said on September 3 this year.
He emphasised that part of what he would have got without Covid-19 went to the $1m-plus SkyCity Employee Hardship Fund.
What would the next year’s pay have looked like for Stephens, had he stayed?
Whitehead said employment negotiations had changed: “Now the executive will be asking if this is the right fit for their future, as much as the company will be asking if this is the right person.”
Fletcher Building chief executive Ross Taylor took a 25 per cent reduction, from $5.2m to $3.9m.
Stephens had one of New Zealand’s toughest corporate roles:
• coping with no international visitor arrivals and the all-important VIP market after the business forked out $50m to upgrade Auckland facilities;
• finishing a A$300m-plus Adelaide expansion;
• repairing the $750m NZ International Convention Centre;
• opening the six-star Horizon Hotel;
• coping with the vanished convention centre market, although NZICC is the company’s single biggest investment.
And the last point could be added: surviving.
Kathmandu’s Simonet took home $951,510 in 2020 in a year when he received no short-term cash incentives as group financial targets were not met. In 2019 he received $1.003m, which included short-term cash incentives amounting to 15 per cent of an $827,000 base salary.
Sky TV’s Martin Stewart was paid between $1.76m and $1.77m in 2020, after taking a 25 per cent pay cut due to Covid-19.
Campbell said that New Zealand CEO pay was not out of step globally.
“There are many more egregious examples of poor senior executive pay structures in other, larger countries. The research does not support the view that excessive salaries and incentive structures produce the best risk-adjusted financial results let alone appropriately meet all stakeholder interests. So we are not as bad as many and should not try to be,” Campbell said.
“My concern about this issue is not simply one of fairness. That is an issue between people working within the same business when relative pay levels get stretched so far as to cause resentment or, more commonly, disaffection and alienation from a common purpose within the business. It is also an issue more widely in society for similar reasons about social cohesion,” Campbell said.
Society was looking for higher levels of social responsibility in business actions, Campbell said.
“Younger generations are cementing that view as consumers, workers, managers and citizens. Business is responding to that but senior executive pay structures are not designed for such a purpose. High, automatically escalating and narrowly incentivised structures are not a good fit for the type of person we need to be leading business now,” he said.
Campbell was reported last month as calling for a business revolution which no longer looks to narrow shareholder interests or pays excessive senior executive salaries and bonuses, he told a breakfast meeting at the Northern Club.
He earned $245,000 as SkyCity chairman, the company’s latest annual report showed, down from $280,000 in 2019.
At retirement specialist Summerset, Campbell earned $176,000. Directors earned $88,000 each and that company approved a director fee rise from May last year.
At Tourism Holdings, Campbell got $153,125 for the year.
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