Boards take a conservative direction on pay

News release from Moyle Remuneration Consulting Ltd

Boards take a conservative direction on pay

More directors got a pay rise in 2010, the latest Moyle Remuneration Consulting survey shows, but the increases were comparatively small.

Some 40% of respondents in Moyle’s Annual Director Remuneration Survey reported an upward shift in fees, compared with 20% the previous year. However, the majority of directors received no increase at all last year, and some had their remuneration trimmed back. Of those who received an increase, the median increase was 8.7% for non-executive directors, while the chair’s fee rose 15.1%. In recent years, median increases have consistently been between 15% and 20%.

“While it seems director fee increases are now back on the agenda for greater numbers of boards, in a difficult economic environment, most organisations were conservative and chose to adopt only modest – if any - increases in board fees,” Mr Moyle says.

The survey confirms that unlike pay for executives, director remuneration is not reviewed every year but more likely every two or three years. The result of waiting so long between increases means that boards are often required to make large catch-up increases of 15% to 30%. Such increases can gain significant attention, even if they are warranted and the total dollar value of increases is not exorbitant, Mr Moyle says.

“It would be better for boards to review fees annually and allow for smaller, incremental increases to keep in line with the market.”

Mr Moyle says director remuneration based on annual fees continues to be the norm, though the survey reports a slight increase in the instance of paying directors daily rates to work on projects that are in addition to their normal workload. Pay for performance is not in evidence. “It’s appropriate for executive remuneration to have a percentage of pay at risk. It’s a different concept for the board, however. While directors are ultimately responsible to shareholders for company performance, they do not have the direct influence over results that executives do and are appointed to monitor strategy and performance, rather than deliver results.”

Moyle has tracked director remuneration for the past six years, and its latest survey reveals interesting trends in the relativities between fees for listed and private companies, compared with the public sector. Moyle’s senior remuneration consultant Sherry Maier says median annual base fees in privately owned and listed companies have risen more than 50% since 2005, compared with 23% for public-sector directors.

Another cut of the data shows that in 2005, listed company directors were paid 1.4 times the median fees paid to their counterparts in public-sector organisations. This has risen to 1.8 times in 2010.

“We know that listed companies tend to be larger and have additional disclosure and regulatory requirements, but the public sector has loads of large SOEs, which are dealing with similar levels of complexity and risk. And what is more concerning is that the remuneration gap is widening. Assuming a public-sector director works just as hard, this has to raise issues in terms of fairness, value-add and motivation,” Ms Maier says.

The typical director in New Zealand in 2010:

- Spent 25 days a year on his/her role (up from 23 days in 2009).

- Earned a median $32,297 annually ($60,000 for a chair).

- Enjoyed the highest median fee if employed in the Hospitality/Tourism sector, and the lowest fee if employed in a not-for-profit.

- Earned a third of the fees paid to an Australian director in a like-sized publicly listed organisation. Continued strong economic growth in Australia has driven the widest fee gap in the history of the survey.

Ends

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