KEY POINTS:
It's tough - and thankless - at the top.
That seems to be the message emerging from a survey of kiwi company directors.
"Governance continues to be an undervalued profession in New Zealand", said Sherry Maier, a senior consultant with Sheffield who conducted the survey.
"Recent criticism of
pay rises for directors is essentially flawed".
Announcing the results of the 2008 Sheffield Director Survey, Maier said comprehensive new data reported on director fee levels shows that governance continues to be an undervalued profession in New Zealand.
She believes a contributing factor to the under-remuneration of New Zealand boards may be a lack of understanding of the role that a board plays in company performance.
"Board pay is not reward or penalty for a company's past performance. Boards do not receive bonus pay when times are good. Their pay relates to the work they are doing now to position a business for improved future results and growth.
"Governance is also about oversight, compliance, reporting and meeting regulatory requirements. Personal liability is involved. Yet some perceive that boards should be accountable for poor financial results, when in fact that responsibility may better lie with management's execution of the business plan."
Maier said the problem with current director fee levels is that good people will not stay, and new talent will not be attracted to the profession.
"And we do need to attract more good people on to boards. There is no doubt that some directors are not up to scratch, and where that is the case, shareholders should not re-elect them."
Board fees in New Zealand are modest, she says. Once again the 2008 Sheffield Director Survey confirms that board fee levels for New Zealand businesses are roughly half those for same-size Australian companies.
"This differential really can't be blamed on the cost-of-living or the tax regime," said Maier. "With comparable workloads and risk profiles, it seems unsustainable that New Zealand should continue to under-value good governance by paying its boards at 50 per cent discounts."
While debate rages about director remuneration, it is important that companies have current comprehensive market data to make informed decisions around director pay issues, added Maier.
Conducted in partnership with Business New Zealand and its member EMA organisations, the latest Director Survey contains information from 279 Kiwi companies, with comparative data of 300 Australian organisations provided by Hewitt and Associates.
A balanced view is presented, with 33 per cent of the sample publicly listed companies, 37 per cent public sector, and 30 per cent privately owned businesses.
The survey found that the median base fee paid to non-executive directors was $30,000 and the median increase in those fees during 2007 was 16.7 per cent, following an increase of 15.6 per cent in 2006.
For board chairs, the median base fee is now $54,000 with a median base fee increase of 14.9 per cent, the same as in 2006. While not every company raises fees each year, approximately half this year's respondents did so.
Fee increases have slowed in Australia, having been at double-digit levels for most of this decade, to 4.7 per cent for chairs and 7.4 per cent for non-executive directors in the past year, according to Riskmetrics Ltd. In part, this deceleration reflects the recent ASX listing rule that requires shareholder approval for board fee increases.
The survey also found that time commitment and workload expected from board members remains high, with 73 per cent of boards meeting on a monthly basis. Some 67 per cent of survey respondents said their time commitments had escalated over the past year, with far greater frequency of transactions and risk management issues being cited as the primary cause. Still, 75 per cent felt the board should devote more time to strategic planning.
Consistent with past surveys, almost three-quarters of respondents indicated growing risk exposure involved in directorships, with a striking 28 per cent reporting they had had a specific negative experience.
"Boards operate squarely in the public spotlight. Everyone can name high profile cases where board performance and judgment have been called into question," said Maier.
Another statistic always of interest is that 20 per cent of non-executive directors and 6 per cent of board chairs are female. Board diversity is an area where the public sector continues to show leadership.
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 $40,000 pa compared with $25,000 in Christchurch and $24,500 in Wellington. Given the respective mix of size and public/private sector businesses, this is not a surprising result.
* This year, the insurance and construction/property industries shared the honours of top payers, with median base fees of $44,708 and $43,334 respectively. The education sector pays the lowest fees at $12,000.
