Is Governance Less Valued in NZ than Australia?
Major survey results pose question "Is Good Governance Less Valued in New Zealand than Australia?"
For like-size businesses, Australia pays its Non-Executive Directors (NEDs) and Chairs almost twice the level of their New Zealand counterparts - and the gap with Australian Chairs is widening.
The inaugural Sheffield Ltd Director Remuneration Survey 2005 - a major new survey on director remuneration and attitudes - reveals that annual base fees for New Zealand company directors rose a median of 20.5% in the past year. This is an increase that begins to narrow the traditional pay gaps with Australian companies.
"Interestingly, the disparity between ours and Australian directors' pay far exceeds pay gaps for comparable executive roles in same-size businesses in the two markets," says Sheffield Rewards Practice Manager Sherry Maier.
The survey results confirm anecdotal evidence that New Zealand directors are receiving overdue boosts to their fees, moving them toward better alignment with fee levels in Australia.
"Perhaps New Zealand is finally recognising the importance of robust governance practices and critical governance skills required at the Board table," says Ms Maier.
The survey, run in conjunction with Management/Director Magazine, is unique in its comprehensive comparisons with the Australian market and in examining for the first time director attitudes towards some of the softer issues. These include risks, workload, time commitment and the regulatory load involved in serving as a board director.
"In our experience, being able to effectively compare the two countries offers a highly relevant benchmarking process," says Ms Maier. "We are moving closer to an integrated regional market, and pay disparities for directors are an obstacle to convergence.
"We work with several New Zealand businesses which have both Australian and Kiwi directors working side by side on the same board. Do you pay them differently to reflect their origin when they clearly shoulder the same responsibilities, take the same risks and are expected to contribute in similar ways? A two-tiered fee system is unfair and untenable - you create two classes of directors."
When asked where boards should be spending their time, the majority of survey respondents (80%) said strategic planning should be more of a key focus. Following that, industry/competitive analysis, succession planning and CEO development were areas more than half the respondents felt boards should be more active in.
Respondents indicated that a typical directorship required 38 days per year at the median, an unexpectedly high figure. If this is true, there may be implications in terms of how many boards an individual can practically serve on, given a maximum of 260 work days annually.
Furthermore, current median NED fee levels of $25,000 do not adequately compensate for such big time commitments, not to mention the critical strategic skills and experience required of directors to protect shareholder/stakeholder interests. In short, it devalues good governance.
Other survey findings include:
- Insurance, Finance and Banking are the most well paid industries for directors. Median base Non-Executive Director fees for these two industries were around $28,000 annually.
- Auckland pays the highest Non-Executive Director fees with a median of $35,000 being paid annually. Wellington and other north island businesses follow at a $25,000 median with Christchurch considerably lower at a $22,900 annual median base fee.
- Only 8.8% of organisations pay Chairs $100,000 or more per year.
- The median base Non Executive Director fees for public sector companies is $22,100, for privately owned companies the median figure is $21,689 and for publicly listed companies it is $30,714.
- Only 3.3% of those surveyed reported their directors were eligible to receive a bonus.
- Among publicly-listed companies 8% had share option plans for board members and 3% offer some sort of share/restricted stock programme. This compares to 20% of ASX companies offering a share plan and 5% to 10% offering a share option scheme.
- Almost three quarters (70%) of surveyed businesses meet monthly. The typical duration of a main board meeting is, on average, four to five hours long.
Former New Zealand Institute of Management Inc Chairman, Doug Matheson, said the Sheffield survey is a relevant and useful tool for all boards in New Zealand.
"The scope and depth of this survey provides boards with valuable data and credible analysis to help them plan director remuneration packages," says Mr Matheson.
Sheffield's Director remuneration Survey 2005, now available for purchase, joins the family of executive and industry-specific remuneration surveys compiled by the firm each year since 1987.