$10 million difference between top paid CEO and the next guy

0:00It's Harold's annual CEO pay survey time using disclosures and annual reports to survey lifts the lid on salaries paid to the 51 Chief Executives of our country's largest listed companies in the 2025 financial year they are paid on average 2.72 million. Let's take a look at the leaderboard right at the top there Gary Miles from Gentrak with a whopping $17 million deal on the turnaround there, which basically dwarfs the next two down the list. This is a very interesting slide from a two and John Colati the outgoing last year CEO of E Boss looking through the you'd have to say one thing that jumps out is that's still largely a bloke's game at the top of the top 10. To talk about who came out on top and why I'm joined by Oliver Mander also a CEO but of the NZ shareholders association Oliver, why on earth is someone paid $17 million? How's it worth? It's a reasonable question. So this is essentially the culmination of some what's called vesting LTI so long term incentive performance share rights that were agreed by shareholders a couple of years ago and that's come to pass on the back of Gentrak's improved performance since then.

1:09It is worth noting that at the time, NZshireholders association actually voted against that proposal because we had some concerns both about the quantum of the LTI and the hurdle rates which you felt was a little too low at the time. Do you feel it's been justified then in the turnaround of the performance or will you still go back and would you change your mind now? I think shareholders paid a very high price for that improved performance and look if you look at a company like Tower, which said very similar annual total shareholder return performance over that period. Actually, the CEO pay for Tower's CEO is a lot less than that of Gary Miles. One thing we have noticed is when you will list your highlights of the fact those three CEOs in the top three there. All of those CEOs are based outside of New Zealand and instead of say separate research, we think that's a fairly significant factor in what determines CEO pay. If you have a CEO based outside of New Zealand for a New Zealand company, that does have a significant impact on the pay rates. Does it impact company performance? No, there's the short answer. There is certainly for the long term incentive program that does have a better correlation to total shareholder return over that three year period.

2:18But the jury is still out on whether that does any significant correlation over a five year or longer term period. We're talking there about whether they're offshore or not or whether or what they're paid. No, that's what they're paid. And then certainly if you're looking at the total remuneration package, which includes net short term incentive and fixed annual remuneration, that the correlation to shareholder return is relatively weak. I guess if you roll it all together and say on average, an average is a terrible thing, 2.7, is that a sizeable sort of a sum for running complex operations? Look, if you compare it with Australia, for example, where companies are larger and CEOs get paid more. So on that basis, there is some relativity there. As you say, a lot of that sort of fixed annual remuneration comes down to company size. And that does have a significant impact on that underlying level of base remuneration. Where there are differences in terms of the incentives that vest. And obviously we would hope that relates to shareholder performance.

3:20I guess you've also got to look at trends rather than just nominal values, right? Are we more or less moving in the same direction at the same rate as peers in Australia and other companies? Or are we lagging behind in terms of pay or paying too much? So then obviously we've done, and that is separate to the pace they've done by the herald. That would show that CEO salaries in New Zealand have increased faster than their Australian equivalents, but obviously offer much lower base. So it is worth bearing that in mind as well. So, and certainly compared to general wage inflation or general worker compensation. So all of us, CEOs, that there are annual increases in fixed remuneration, that they haven't kept pace with that general wage increase. Interesting. So you mentioned there's a notably better disclosure of CEO generation elements than in previous years with a couple of exceptions. We could get to those if you like. But what's better? What are you finding is better about the disclosure? Yeah, so look, I think that that follows a period of pressure by the likes of ourselves,

4:23but also other fund managers and other investors. We're really concerned with the disparity between the disclosures available for ASX listed companies compared with that on the NZX. And really as part of that, the corporate governance that's due to NZX, they've produced a voluntary template. And that template has been widely adopted by NZX listed companies. So that structs a bit of a sweet spot. It's relatively easy to comply with. So the compliance cost is low. But it also then provides some really useful information for investors to judge that CEO remuneration benchmarks. It's a great piece of work. It's always good to sort of see. But it's just one measure of a company's performance, isn't it? What are you paying the person in the top job? Well, it's actually a measure of performance. It's almost like a fund fee that you're paying to the CEO to manage your investment. And that's why we take a bit of interest in it. Is that remuneration fair? Is it reasonable? Is it justified? Is it linked to performance that sort of strongly suggests that the decisions

5:23they're making are aligned with the long-term value that they're creating for shareholders? That would be the aim of how things are designed, and how remuneration packages are designed, but it doesn't always work out that way. And that's why we're paying the person in the top job.