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What it costs to be the boss

The NZ Herald released its CEO pay survey this month. Here are some of the retail-relevant results included:

  • Restaurant Brands’ Russel Creedy – earned $699,999 in 2014. Up from $669,999 in 2013.
  • Trade Me’s Jon Macdonald – earned $675,783 in 2014. Up from $554,510 in 2013.
  • The Warehouse Group’s Mark Powell – earned $1,510,000 in 2014. Down from $1,969,000 in 2013.
  • Xero’s Rod Drury – earned $395,000 in 2014. Up from $355,000 in 2013.
  • Z’s Mike Bennett – earned $2,060,000 in 2014. N/A in 2013.

Pay transparency is beneficial on many levels.

Using the survey, boards can assess whether CEOs are being paid accordingly in relation to their performance, while the public can assess whether a company’s workers are getting their fair share.

The latter is particularly significant, as the income gap between CEOs and their staff has become a contentious topic worldwide.

The Warehouse Group CEO Mark Powell commented about his large pay cheque last year.

“Whether it’s too high, I’m not too sure on that. What I do know is it is… it is more than most people will earn ever,” he told the NZ Herald.

“And when you earn a lot of money you have a responsibility to think about that and that’s where the word ‘troubled’ comes from.”

“Do I think I get paid a lot? Yes, I do. Does that trouble me? Do I think about that? Yes, it does.”

Despite the concerns Powell raised about his pay, The Warehouse Group seems to be making a genuine effort to help its staff by prioritising their pay and career advancement.

In 2013, The Warehouse Group made sure all of its employees were bumped up to a living wage of $18.50 to $20 an hour.

The company has also launched a training centre earlier this year to ensure retail is seen as a solid career.

Over at Xero, founder and CEO Rod Drury isn’t the highest paid employee at his company.

According to Xero’s latest financial report, four people earn more than his remuneration of $567,000, with the highest paid employee earning between $1,570,000 and $1,579,999.

Out of the five examples mentioned, three got a pay rise from 2013.

Z CEO Mike Bennetts’ 2013 pay isn’t specified. The Warehouse Group’s Mark Powell was the only decrease in pay.

On average, all of the CEOs surveyed experienced an average 10 percent increase in pay.

Average yearly pay for retail CEOs and workers:

Infographic: Rupal Hira

Are they getting paid too much? Council of Trade Unions secretary Sam Huggard says they are.

“Many workers haven’t had a pay increase at all,” Huggard says.

“Despite the government saying inequality is falling, when we crunch the numbers they show that a sharp rise in inequality is due to a rapid rise in high incomes [of CEOs].”

The Shareholders Association chairman John Hawkins says it’s impossible to analyse whether CEOs are getting paid too much without having the full details.

“What the numbers do show is that some boards take a harder line and still have very successful CEOs,” Hawkins says.

“For example, Restaurant Brands’ Russel Creedy had a 4.55 increase in a period when turnover rose 9.25, net profit 19.4 percent and dividends to shareholders 15.2 percent.”

He says Mark Powell’s performance pay dropped 23 percent, as sales increased 4.7 percent but net profit dropped 48 percent.

But he points out it’s varied, as on the other hand, Trade Me gave John Macdonald a large pay increase despite profitability and share price being pretty flat over that time.

In comparison, Trade Me Jobs says the average pay for a retail assistant in New Zealand is $32,000.

Payscale.com says a retail sales assistant in New Zealand earns $15.05 an hour on average.

The Shareholders Association is keen to limit their CEOs’ base pay to more than 20 times the average wage of $54,700.

Chairman John Hawkins says this figure is a reasonable base figure for the CEO of a medium to large New Zealand listed company.

He says when there is a huge gap between the CEO and average worker pay, staff don’t see the situation as fair.

“Many workers have a great deal of responsibility in their jobs and resent someone they see as milking the system, whether or not that is a fair view,” Hawkins says.

“It does nothing for staff morale and can easily lead to reduced productivity and high staff turnover, not just on the shop floor, but also in mid-management.”

“Both situations are very disruptive and costly and shareholders themselves resent it when they see large increases in pay, but no corresponding increase in dividends or share price. After all, it is their money.”

He says the bottom line for shareholders is whether the CEO’s performance justifies the pay.

He says there’s plenty of evidence that high pay doesn’t equal high performance.

A study out of the US found the highest-paid CEOs are the worst performers. This was found to be true for both big and small companies.

“Some of the most successful companies worldwide as well as in New Zealand have relatively low paid executives,” Hawkins says.

“Equally, some of the poorest performing companies pay the most.”

“Boards need to take a tougher line and ask to see the results before committing to the really big numbers. And they need to ensure the performance measures they use are both straightforward and enforced.”

If there’s a pay inequality in New Zealand, it is tame when compared to the US.

According to the Bureau of Labor Statistics in the US, the average store assistant makes $21,410 per year, or $10.29 per hour.

PayScale echoes this and says the median hourly rate for a US retail worker is $9.

On the other end of the spectrum, a USA today analysis of data from S&P Capital IQ found 13 restaurant and retail CEOs make on average $US5859 an hour.

 It would take a staff member earning $10 an hour more than two months to pool together what the CEO makes in an hour.

Hawkins says CEO pay is relatively modest in New Zealand.

The average CEO remuneration is probably 15 to 35 times that of the average worker’s income, with a few outliers, he says. Most will be under 30 times the average pay.

“Australia runs from about 50x – 150x and the USA is now at about 300x, although it has been higher in the past,” Hawkins says.

The Green Party has made a call for large, publicly listed companies to disclose the pay gap between their highest and lowest paid workers as a way to justify the CEO’s pay.

Do you think CEOs are being paid too much? Share your thoughts below.

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