Directors’ fees – reflects greater responsibility and risk

Directors’ fees – reflects greater responsibility and risk

The Institute of Directors’ 2015 Directors’ Fees Report shows directors’ fees have risen moderately this year, but workloads have almost doubled, reflecting an environment where boards are facing more scrutiny and regulation than ever before.

Institute of Directors Chief Executive Simon Arcus says despite the median increase in non-executive directors’ fees by 4%, most (88%) saw a median increase of 41% in time commitment.

“The right balance between risk and reward is critical to attracting skilled, competent and diverse talent to your board table,” Mr Arcus says. “We think there could be pressure on director remuneration levels in an era of increased liability and compliance. Our members tell us the burden of compliance has grown. What New Zealand needs is highly skilled, fairly remunerated directors. It’s not enough to say there are plenty of directors lining up out there: New Zealand needs a focus on quality not quantity.”

This is the first year that the IoD has worked with EY to undertake our annual IoD Directors’ Fee Survey, and this year saw a 27% boost in survey participation, making it the most comprehensive in our history.

EY partner Una Diver says the relatively modest increase in directors’ fees is a concern. “Do their current pay levels mean we don’t adequately value the critical governance role directors perform? We know the regulatory landscape is changing significantly, meaning it is critical that people with the right mix of skills are attracted to governance roles.”

Survey data shows only 50.6% are satisfied with their current level of remuneration, Diver says. Diversity in the boardroom is another area where progress has been slow. According to the IoD-NZIER Director Sentiment survey, of current serving directors, 64% agree diversity is a key consideration in making new appointments. Nevertheless, female non-executive directors comprise only 26.9% of the total sample; for Māori non-executive directors the figure is 4.7% and for Asian directors 0.2%.

“There are good economic arguments for getting the right skill mix, and gender, onto boards,” Diver says. “Research shows even one woman on a board can enhance its performance. It’s time to see the diversity statistics improve.”

Mr Arcus said it is also notable and concerning that the disparity between New Zealand and overseas owned companies has increased.

“In 2014 NZ-owned company director fees were on average 58% less than overseas-owned companies. In 2015 it is 63% less,” Mr Arcus says. “Many variables need to be considered when determining a fair and reasonable fee. Directors play a central role in the economic health of our country. Economies are about confidence, directors are the backbone of that confidence. I am not afraid to say that directors are worth it. We pay directors to do the right thing not the commercially safe thing,” Mr Arcus says. “That can involve taking risks. New Zealand needs directors who are courageous but for whom the risk and reward balance in remuneration makes sense.”

ENDS

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