On CEO pay, and the calls to hike up interest rates

Lets get this straight. Paying schoolteachers is said to be a very very bad thing to do as we emerge from the recession – but letting CEOs in the private sector make out like gangbusters is totally fine, even while they’re preaching austerity to everyone else. That’s just the natural order of things. Lets start with the teachers. Get real, the Dom-Post sternly told teachers in yesterday’s editorial, while condemning the “ludicrous” pay claim by the PPTA

There has long been a suspicion that reality stops at the door to the teachers’ staffroom.

The Post Primary Teachers Association’s ludicrous claim for a 4 per cent pay rise for secondary school teachers lends credence to the theory.

The world is just emerging from the worst financial crisis since the Great Depression, the Government is effectively borrowing $200 million a week to maintain existing levels of services, tens of thousands of New Zealanders have lost their jobs, and hundreds of thousands have received little, if any, pay rise for the past two years.

The majority reluctantly accept that is the price they must pay for job security. At a time of crisis, everybody – employers and employees – has to tighten their belts.

Yep, note that phrase about belt tightening by employers and employees alike. Because http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10643251reality stops at the boardroom door:

Almost half New Zealand’s chief executives received pay rises last year – with a median increase of 5 per cent – despite the worldwide recession and many workers enduring salary freezes.

A survey, released today, of 455 chief executives, general managers and managing directors found 48 per cent received a salary increase last year…

Less than 1 per cent of those surveyed had their pay cut, and the median increase for those who did get a raise was 5 per cent, down from 6.1 per cent in last year’s survey.

The Moyle Consulting survey says the average chief executive is male, aged between 47 and 59, and has a median base salary of $200,000 and a $300,000 overall package…..

Shareholders Association chairman Bruce Sheppard said he was also surprised.

“I have no problem with CEO pay going up if they deliver on the performance criteria the board set for them, but I can’t see too much rationale to increase base pay,” he said.

Mr Sheppard said he could understand a board lifting a chief executive’s base pay if other employees in the organisation were receiving salary levels that were creeping towards the CEO’s rate.

“There are adjustments that are made, but 48 per cent in an economy that’s flat – that surprises me. But I would have been equally surprised if it was zero.”

Oh, and how much was the median pay rise lower down the food chain ? The same survey showed the median increase was only 3.3 per cent –and obviously a 5% increase on $200-300, 000 means a lot more than a 3.3% increase on a salary say, of $45,000. Not that there isn’t a lot of heartache in the tycoon sector:

…. feedback from chief executives suggested a sense of unease over their salary reviews this year.

Those who did not receive a raise last year feared they would miss out again this year.

The survey also indicated that many chief executives missed out on bonuses last year. The incidence of performance pay dropped from 53 per cent in 2008 to 43 per cent last year, and Mr Moyle [of the firm that conducted the pay survey] said it was “concerning” that many organisations had put incentive schemes on hold.

“Now would be the ideal time to introduce or increase incentive schemes to ensure the executive is focused strongly on results and rebuilding the company.”

Yep, its always a good time to increase CEO remuneration. During recession, recovery and all times in between. Shucks, only 4 in ten CEOs got bonuses last year. Imagine the shame of not getting your bonus during the heart and aftermath of the biggest recession in decades. Think how bad you’d feel on missing out, when Pinkney at the golf club seems to be getting his.. And how ’ludicrous” to think of applying similar pay incentives to schoolteachers. What on earth are they thinking?


The recovery, sort of

For the rest of us, belt tightening all round is still the message. Thankfully, the unemployment, job creation and hours-worked figures are all improving. When seasonally adjusted, the employment figures in this week’s Household Labour Force Survey were far better than expected. “Only” 6% of New Zealanders currently looking for work, are out of work. The policy response to this trickle of good news? Slam on the brakes! Raise interest rates! Manage the wage rounds lest the inflationary fires rage out of control. Reality once again, seems to stop at the bank economists’ doors.

Out in the real world, any elation at the good news on the job front should be tempered. In the next HLFS the discouraged workers who gave up looking for work may well come back into the frame, and push the unemployment percentage higher. The good news on job creation is also missing out Auckland, much of the heartland and Maori and Pacific Islanders. Even for the rest, wage levels are not exactly raging out of control. Nor is the international economy in the pink of condition. To state the obvious : the global recovery is on extremely shaky ground, right now.

Even without the threat to economic stability in Europe, the domestic recovery is pretty flimsy, so far. Moreover, the main inflationary pressures are not coming from wages ( or rampant job creation) but from the export prices being earned by dairy farmers, and from the looming hike in GST. Regardless, wage and salary earners will bear the brunt of the rise in interest rates (and resultant mortgage costs) being touted by Reserve Bank Governor Alan Bollard, and by the chorus of bank economists. Bank economists really should be required to declare a vested interest every time they open their mouths in public about interest rates.

So far, Ganesh Nana of BERL has been a lonely voice of reason in this debate– by pointing out that the numbers of jobs in the economy is still below what it was this time last year. Which is surely the point. Even if one takes that 6% unemployment rate at face value – is this really the best we can tolerate in this economy, before slamming on the brakes ?


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