Friday, March 27, 2009

More on SOE bonuses

This morning I posted about TV3's story on bonus payments at SOEs, suggesting that we might need a bit more information than TV3 has given us before leaping to judgement, and that there is a world of difference between rank and file employees receiving a small fraction of their salary in performance pay, and banker-style executive theft. Fortunately, some more information has since come to light. Two of the worst offenders - NZ Post and Solid Energy - in fact have performance pay for ordinary workers written into their collective contracts. So, some of the bonuses they pay out comes directly from delivering more letters or digging more coal, and goes to ordinary workers rather than fatcat management.

How much? According to a source, about 7,000 workers at NZ Post are eligible for the Business Unit Improvement Programme, receiving a maximum of $1,000 each a year (which is on the order of 3 - 4% of their base salary - not excessive at all). Doing the maths, that adds up to $7 million. But NZ Post paid out $20 million in bonuses. So where did the other $13 million go? Upper management - and tilted heavily towards the top.

Here's the kicker: in 2008, NZ Post reported an annual profit of $110.2 million, but passed on only $23.5 million in dividends to the government. So, their management thinks it is worth more than 50% of the amount it gives to us, its shareholders. This year their results are worse - the second half of 2008 saw flat profits and the half-year dividend cut to $6.9 million. As the bonus figures are likely to be calendar rather than financial years, this means that its management thought they were worth as much money as they gave to us, despite a truly terrible performance.

Executive bonuses are "justified" on the basis of performance. If management does well and makes more money for shareholders, they should be rewarded. But what we are seeing here is a management which takes a substantial fraction of its "improved performance" for itself, and then rewards itself for failure.

There is a word for this. That word is theft. NZ Post's management is stealing from us, its shareholders, and taking money which could be used to pay for our schools and hospitals to line their own pockets. Its board is violating its fiduciary duty to look after our interests and instead letting the executives loot the company and capture the profits for themselves. That is not just wrong - it is illegal - and the Minister should step in and do something about it.