Labour's new president is calling for government intervention to regulate executive pay and bonuses.

Andrew Little, who is also secretary of the Engineers, Printing and Manufacturing Union, wants the state to intervene "to avert excessive and extreme rewards."

He cited cases of multi-million dollar payouts to bank CEOs and others in the USA even after the bank had been bailed out by taxpayers.

"While the excesses apparent overseas have not been replicated in New Zealand the culture in many companies here is for excessive and disproportionate rewards unrelated to performance to be paid to a small group of executives," Mr Little said.

He told a Wellington business audience that the percentage of executive remuneration paid in performance related rewards was lower in New Zealand than in other countries.

Mr Little cited a Sheffield survey of CEO packages in 2007 which found that in New Zealand performance pay was 16% of the package on average. The world average was 39% and it was 60% in the United States.

As a union leader he wanted to rein in the growing inequality in pay between chief executives and the average employee in a company. Mr Little said that in the USA overseas the multiple had grown from forty times in 1985 to 450 times in this decade.

High rewards based on short term performance encouraged executives to take high risks to maximize short term gains such as profit and the share price rather than to invest in long term growth strategies.

It should be mandatory to hold stock options for ten years to take away the incentive to maximize short terms gains so executives could profit immediately by cashing in their options.

Executive pay should also rise and fall according to the overall performance of the company on a number of measures.

Mr Little called for an independent representative of small shareholders and for a representative from the shop floor to be part of board remuneration committees fixing the chief executive salary package.

He noted the proposal by former New York Governor Eliot Spitzer for the SEC to have oversight of executive remuneration to ensure that "genuinely independent processes are in place."

"No one on the board remuneration committee should have shared interests - including shared social interests - with the ceo, and the package should be approved in a free vote of shareholders rather than by the board," Mr Little said.

Mr Little said he admired Air New Zealand's Chief Executive Rob Fyfe for his freezing of executive salaries and for disclosing in detail how his own salary package was made up and particularly what the rewards for performance were for.

Published in the National Business Review of 13 March 2009