Owen Hembry

Business news editor of the New Zealand Herald

Directors' pay up but restrained, says survey

Director base pay last year rose more than five times the rate of the average worker but according to a survey boardrooms are showing restraint in light of an uncertain economic environment and public sensitivity.

The survey by Moyle Remuneration Consulting found that for those who got a rise the median increase in base fees last year was 11.1 per cent for non-executive directors, which between 2004 and 2009 consistently ran between 15 per cent and 20 per cent. The median increase for chairmen was 12 per cent.

Statistics New Zealand's Labour Cost Index yesterday showed a national increase in salaries and wages in the private sector of 2 per cent last year.

The survey said of the 263 companies that responded, 48 per cent saw an increase in base fees last year, compared to 40 per cent the previous year.

Moyle director Jarrod Moyle said: "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 found director remuneration was more likely to be reviewed every two or three years rather than annually and several businesses had reviewed board fees for the first time in five years, having decided to sit tight during difficult economic circumstances.

"It would be preferable for boards to review fees annually, as for executives, and make smaller, incremental adjustments to reflect market movements," Moyle said.

Director remuneration generally consisted of base annual fees, although there was an increasing reliance on separate committee fees, which 42 per cent of organisations reported paying, and which could account for about 10 to 15 per cent of total remuneration.

The typical director earned a quarter to a third of the base fees paid to an Australian director in a similar sized organisation and continued strong economic growth across the Ditch had created the widest fee gap in the survey's seven-year history.

Pay increases might generally align with company results, although pay for performance in the form of bonuses or large step increases of base fees was not common at board level.

"It's appropriate for executive remuneration to have a percentage of pay at risk. It's a different concept for the board, however," Moyle said.

"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."

The typical director earned a median $34,429 annually in base fees, with chairmen getting a median $63,355.

New Zealand Shareholders' Association's Des Hunt said they supported reasonable fees but had fought increases that sought catch-up with other organisations rather than having some consideration for shareholders' returns and company performance.

"Some of them are showing responsibility but there are still one or two who just feel that they should keep up with the Australian fee levels irrespective of performance."

Chief executive pay was a bigger issue than director fees, Hunt said.

"What we'd like to see is if directors are not producing results, it's not the fees so much we'd be concerned with as ... if they can't successfully manage the company then they should step down and let somebody else come in and do the job."

It was the larger public companies where fees had increased, such as SkyCity Entertainment, Hunt said. Shareholders at SkyCity Entertainment last year agreed to a 36.8 per cent rise in its director fee pool to $1.3 million a year, including a 25 per cent rise in chairman's fees to $250,000 and 33.3 per cent for director fees to $120,000 a year.

Moyle senior consultant Sherry Maier said listed company directors were paid 1.96 times the median base fees of those in public-sector organisations, compared to 1.4 times in 2005, while privately owned businesses paid median fees equivalent to 1.3 times the public sector.

- NZ Herald

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