Why Fonterra accepted defeat in the dairy aisle
OPINION: Fonterra's sale of its consumer dairy business to Lactalis is a clear sign of the co-operative’s failure to compete in the branded consumer market.
Fonterra chairman John Wilson agrees that Spierings’ pay, revealed in the co-op’s 2016-17 annual report, is “big numbers”.
“We benchmark this remuneration using independent advisors,” Wilson says.
“Clearly these numbers are high from a New Zealand perspective and we absolutely respect and understand that; but from an Australasian and global perspective we are still well within the bands of what those global executives earn.”
Fonterra’s annual report shows Spierings received a base salary of $2.4m, short-term incentives totalling $1.8m and $3.8m in long term incentives.
Wilson says 5600 employees received short term incentives aligned to key operating metrics.
A new set of incentives was agreed between the board and senior management on the co-op’s transformation project called ‘velocity’.
“We had an extraordinary result this year; to give credit to management they were able to hit those targets and the outcome... are what we call ‘velocity’ payments.”
He says the ‘velocity’ project made $2 billion cash and working capital for the co-op.
Fonterra shareholders council chairman Duncan Coull says feedback from his councillors attending farmer meetings last week shows there weren’t “a lot of discussion or questions from the floor” on the issue.
Coull says the level of transparency in Fonterra’s annual report and directors’ explanations gave context to the pay package and put farmers at ease.
“I think there’s more interest in the issue from those outside Fonterra,” he told Rural News.
Coull says Fonterra paid $10b to farmers in the last financial year -- a total payout of $6.52/kgMS. “These are big numbers.”
Federated Farmers dairy chairman Chris Lewis says there were “mixed reactions” from farmers he spoke to. Some question whether Spierings would be paid $8m by another global dairy giant like Nestle or FrieslandCampina, Lewis says.
“The $8m pay package is certainly eye-watering and some farmers are asking whether he is an $8m man,” he says. “But some point out that the $8m is not his salary; most of it is bonus for meeting targets set by the board and the board is satisfied with his performance.”
Lewis says Spierings’ leadership delivered results for Fonterra last year and setting the remuneration package is “a difficult balancing act” for the board.
