Boards continue a restrained stance on pay

7 February 2012
News release from Moyle Remuneration Consulting Ltd

Boards continue a restrained stance on pay

More directors got a pay rise in 2011, the latest Moyle Remuneration Consulting Survey shows, but the increases remain below levels typically seen between 2004 and 2009.

Some 48% of respondents in Moyle’s seventh annual Director Remuneration Survey reported an upward shift in fees, compared with 40% the previous year. Of those that received an increase, the median increase was 11.1% for non-executive directors, while median chair fees rose 12%. Between 2004 and 2009, median increases consistently ran between 15% and 20%. "We note that these percentage increases are calculated on what are relatively small base dollar figures - certainly compared to base salaries of corporate executives," says Moyle director Jarrod Moyle.

“While it seems director fee increases are back on the agenda for more boards, in an uncertain economic environment with a high degree of public sensitivity, most organisations were conservative and chose to adopt modest increases in board fees.”

The survey confirms that unlike pay for executives, director remuneration is not reviewed annually, but more likely every two or three years. Several businesses reviewed board fees for the first time in five years – choosing to sit tight during difficult economic circumstances.

The result of waiting so long between increases means that boards are often required to make large catch-up increases of 15% to 30% to stay in line with the market. Such increases can gain significant attention, even if they are warranted and the total dollar value is not significant, Mr Moyle says.

“It would be preferable for boards to review fees annually – as for executives - and make smaller, incremental adjustments to reflect market movements.”

Director remuneration generally consists of base annual fees, however, Moyle senior consultant Sherry Maier notes the increasing reliance on separate committee fees: 42% of organisations report paying separate committee fees, and more board work is conducted in committees. Besides the typical Audit, Remuneration and Nominations committees, 41% of organisations indicate Special Purpose, Transaction, Risk, or other committees exist within their board structure. Just over half of respondents report increased workloads, and indicate that one of the major drivers of this is ‘Serving on More Committees’.

Although approved pay increases may generally align with overall company results, pay for performance in the form of bonuses or large step increases of base fees is not common at board level in New Zealand or any other relevant market. According to Mr Moyle: “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 line-of-sight influence over results that executives do and are appointed to monitor strategy, compliance and performance, rather than deliver results.”

Moyle has tracked director remuneration for the past seven years, and its latest survey reveals interesting trends in the relativities between fees for listed and private companies, compared with the public sector. Ms Maier observes that 2005 data shows listed company directors were paid 1.4 times the median fees paid to their counterparts in public-sector organisations. This has risen to 1.96 times in 2011 – so effectively is now double. Privately owned businesses pay median fees 1.3 times the public sector.

“It will be a tricky process to reconcile this listed/public company pay disparity as the SOEs involved in the privatisation process set director fees, and we await the decisions with interest.“

The typical director in New Zealand in 2011:

- Earned a median $34,429 annually, and $44,000 if based in Auckland. Chairs earned a median $63,355.

- Enjoyed the highest median fee if employed in the Construction and Property sectors and the lowest fee if employed in Education.

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

ENDS

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