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Are there too many managers in NZ firms?

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Photo / Getty Images.
New university study assessing if companies are top-heavy with senior management.

We've all heard the complaint in offices and shop floors - too many managers, not enough workers. Now a unique University of Auckland Business School study is looking into why New Zealand companies have so many senior managers and their productivity.

It's a corollary to research published last year by Tim Hazledine, professor of economics at the Business School, which looked at the "mystery" of why New Zealand chief executives are paid so much.

"It's the elephant in the New Zealand business room," says Hazledine. "Why are there so many of these senior managers, what do they actually do - and has there been a productivity collapse in many New Zealand companies because of this proliferation of managers?"

His 2016 study, Tip of the Iceberg: what underpins top pay, researched companies required by law to include in annual reports information on all employees earning more than $100,000 a year - in an attempt to find out whether CEOs are worth what they are paid.

Hazledine says he still doesn't entirely know the answer - though it is clear CEO pay has gone ahead in leaps and bounds over ordinary workers.

In the companies studied, the highest-paid CEO (Spark) received a remuneration package in 2014 worth $3.8 million. The lowest paid, at start-up Windflow Technology in 2005, earned just $110,000.

Tim Hazledine, professor of economics at the University of Auckland, Business School. Photo / supplied.
Tim Hazledine, professor of economics at the University of Auckland, Business School. Photo / supplied.

While size is important (a company twice as large as another will generally pay its CEO 30 per cent more, in line with overseas trends), it isn't always so. Spark's revenue in 2014, at just under $3.7 billion, was less than half that of the largest listed company by revenue, Fletcher Building ($8.4 billion). At $1.9 million, Fletcher Building's CEO was paid only one half of the Spark boss, says Hazledine.

It's not profits either - as many companies making a loss paid their CEOs handsomely as well. Hazledine says: "...compared with everyone else, CEOs in the highest-rate-of-return companies and CEOs in those making losses are the best paid, other things being equal."

Yet the figures are clear. In 2014, CEOs in the New Zealand listed companies sector received an average compensation of $840,000 - a figure that has increased since 1995 by 85 per cent in constant dollars, even when corrected for company size.

Over the same period, real weekly wage and salary earnings have increased by just 13.5 per cent. As a result, CEO pay is now on average 12 times higher than that of the average shop floor worker. The near doubling of CEO pay since 1995 also contrasts with increases in real wages and salaries only a sixth as large, on average.

However, in trying to find a pattern in how and why CEOs are reimbursed, Hazledine found an intriguing link - the number of managers in companies (with the relevant available data) increased by 122 per cent in the period of the study.




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