Director’s Fees on Rise But Still Lag Australia

MEDIA RELEASE
For immediate release: Friday 6 July

Director’s Fees on the Rise But Still Lag Australia,
Survey Finds Board Fee Gaps Far Exceed Executive Pay Differentials

6 July, 2007

New Zealand’s non-executive directors are remunerated far below their Australian counterparts, despite receiving a healthy increase over the past year, according to a recently released survey by HR consultancy, Sheffield Ltd.

The survey found in comparably sized businesses in Australia, non-executive directors were receiving 50 – 150% higher fees than their New Zealand counterparts. In addition, the great majority of Australian firms offer share purchase or share option schemes as well as generous superannuation benefits.

Across its database of 259 New Zealand organisations, Sheffield’s annual Director Remuneration Survey found that over the past year the median base fee paid to non-executive directors was $27,861 and the median increase in those base fees was 15.6%. For board chairs, the median base fee was $52,000 with a median base fee increase of 14.3%.

Sheffield Senior Reward Consultant Sherry Maier says these percentage rises in director fees greatly exceed New Zealand’s 2006 pay increases for executives, which ranged between 5% and 6% medians, as identified in Sheffield’s annual executive surveys.

“These annual gains were achieved during a period in which virtually no increases were received by directors and chairs on the boards of almost 50 state and crown entities in our database, which suggests the private sector was making even more dramatic moves.

“The question is how these triple-digit gaps with Australia can be explained. Surely, nobody believes that Australian directors are working twice as hard, face twice the liabilities or are making contributions twice as valuable as their New Zealand counterparts in similar-sized businesses.

“In our view, besides minimal movements in the state sector, another factor that depresses fee levels is the different profile of directors here versus Australia. Unlike Australia, where a professionally trained, highly selective and well-paid director class has developed largely from corporate origins, New Zealand has traditionally tended to rely more on a large and steady supply of partially retired individuals who enjoy the involvement and service aspects of serving on boards, but who are generally not wholly reliant on the income. Such individuals are less likely to exert pressure to raise board fees to more appropriate and competitive levels,” says Ms Maier.

She says it is good news the gap between the fees paid in Australia and New Zealand is narrowing marginally - New Zealand’s 14% and 15% year-on year increases compare to the 9% to 11% increases experienced in Australia in 2006.

“But there is clearly still a long way to go.

“This also raises a related issue. We find the level of disparity in executive pay levels between the two countries – again between comparably-sized businesses - is inconsequential when compared to the enormous gaps seen in board pay. The often-cited 20% to 40% pay gaps with Australia do exist at general staff and middle manager positions, but we find that with Trans-Tasman executive mobility, such gaps have largely eroded for top corporate jobs.

“How can a New Zealand business justify the inconsistency of paying a top executive team at highly competitive Trans-Tasman levels to attract and retain the best talent, while paying substantially below regional market fees to the board of that same business?”

“Robust corporate governance is critical and demands that the many contributions of directors be valued properly.”

The survey also found the time commitment and workload expected from board members had increased, with 78% of boards now meeting monthly, up from 65% a year ago. Additionally, the typical median time commitment involved in a single directorship was 29 days per year, up from 25 days a year ago, with chairs’ time reported as approximately double that.

“Our respondents told us that an increasing amount of work is being done in committees – such as audit and remuneration committees – yet only a third of the surveyed organisations paid separate committee fees. We advocate the payment of committee fees as a best practice, since such ‘unbundling’ may better reflect actual time commitment and workload.”

Ms Maier says that consistent with past surveys, 75% of all respondents indicated growing risk exposure involved in directorships over the past five years, with a striking 26% reporting they had had a negative experience in just the past year.

“Boards are increasingly under media, shareholder and stakeholder scrutiny and operate squarely in the public spotlight. Everyone can easily name high profile cases where board performance and judgment has been called into question.”

Ms Maier says some strong correlations continue within this year’s data.

“Director fee levels correlate well with organisation size, especially revenues. Also, as in the past, chairs are consistently paid at twice the level of a non-executive director, reflecting the greater time, responsibility and accountability involved.”

She says one of the overall key survey findings was that only 17% of non-executive directors and 6% of board chairs were female. Board diversity is an area where the public sector has long shown notable leadership, where females represent 32% of non-executive directors.

Other key findings of the survey include:

- Geographically, non-executive directors of Auckland-based organisations are paid at the highest levels with a median of $35,500 per annum, compared to $25,000 in Wellington and $24,500 in Christchurch. For the first time, Christchurch is the lowest of all locations surveyed. Of course, Auckland tends to have the largest businesses, so this is an expected result.

- Given their typically larger size and complexity, publicly-listed companies are paid – not surprisingly - the highest median fees at $37,724, nearly 50% higher than the $25,000 paid by privately-owned businesses and $21,750 in the public sector.

- Non-executive directors on the boards of companies in the hospitality/tourism sector earn the highest base fees. Non-profit and educational organisations pay the least.

The Sheffield Director Remuneration Survey is in its third year. 259 organisations took part in the 2007 survey. 40% were publicly-listed companies, 31% were public sector organisations and 29% were privately-owned businesses.

ENDS

Sheffield sells this Survey in both CD-rom and hard copy format for $550 and $645 respectively.

© Scoop Media