Why Don't We Pay for Performance?

New Zealand Management, April 2006 | Go to article overview

Why Don't We Pay for Performance?


Australian execs get nearly twice as much while American CEOs earn nearly four times that of their Kiwi colleagues--it seems local CEOs are seriously lagging global trends when it comes to performance pay.

In releasing its 2006 CEO Survey last month, Sheffield described the reducing level of performance pay in New Zealand as alarming.

"It sets New Zealand-based executives poles apart from the rest of the major economies internationally. Around the globe the incidence and proportional amounts of performance pay are growing," says Sheffield reward practice manager Sherry Maier.

Here, they're shrinking. Two years ago nearly 70 percent of chief executives received some form of performance-based pay. That number has now dwindled to 54 percent and the amount of discretionary pay averages just 16 percent compared to 30 percent in Australia and 62 percent in the United States.

"The only country that registers a lower proportion of performance pay than New Zealand is India with 14 percent," says Maier.

New Zealand executives also receive a much smaller proportion of their remuneration in the form of benefits-just seven percent compared to the US and Canada on 11 percent, Australia on 19 percent and India on a massive 41 percent.

Why the discretionary pay gap?

Possibly the country's deteriorating business activity means fewer CEOs are achieving their performance targets--though this shouldn't show up till next year, says Maier. It could also point to a lack of faith in performance-based reward systems, she suggests.

Companies could be avoiding them either because they've been poorly managed or because recent high-profile bonus and share option scandals have given them a bad name. …

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