Cathy Quinn: Governance matters. So does fair pay

Minter Ellison chair Cathy Quinn.

Opinion

Director remuneration does not fairly compensate directors for the workload or the risks, writes Cathy Quinn.

Monday's Herald published the results of the Institute of Directors' survey of directors on remuneration. Close to half of directors in the survey thought they are underpaid.

We agree. By and large director remuneration in New Zealand does not, in our view, fairly compensate directors for the workload required for the role and the risks assumed.

The IOD's survey contrasted the median remuneration paid at NZ listed companies ($78,570) and that paid to directors of state entities ($29,000).

Many directors of state enterprises have been willing to accept some "discount" to what they think fair as they see contributing to governance of these entities as being part of "public service" and contribution to NZ Inc.

There must come a point however when the gap is so wide that the state will not be able to attract or retain the very best.

The Deputy Prime Minister recently pointed out that many enterprises owned by the Crown find themselves in challenging circumstances, sometimes through no fault of those governing or managing them.

Changes in technology are fundamentally disrupting many businesses. Holding on to and securing the best minds to govern these entities to address these issues must be a priority.

In the past, some in the director community also took comfort from the fact there was an implied guarantee from the Crown in respect of state enterprises. The fact that there is not and neither should there be is emphasised by Solid Energy recently being placed into voluntary administration.

Companies fail for many reasons. Sometimes the blame can fairly be attributed to governors and other times not. However, it is often a "kiss of death" for a director to be associated with a failed company.

All the more reason for those who seek to contribute to the success of companies to be paid for the risk they take in doing so.

By and large the director community shies away from raising their hand for fairer remuneration for fear of being labelled "fat cats".

The contrast between the remuneration shareholders are willing to support for executives and directors is stark.

Commercially we appreciate the benefit to shareholders of getting "more for less" or "driving a hard bargain".

The risk for shareholders if they refuse to support fairer remuneration for directors is that quality people could refuse to contribute.

Conversely, directors can end up taking on more roles than desirable.

There are real benefits to directors having multiple roles - what they see through one lens can help them make a different contribution elsewhere. However, there is a balance to be struck.

For example, if a crisis hits, directors typically need to devote their full time to the matter.

Similarly, the benefit of directors having "space to think" cannot be undervalued.

We continue to urge the director community to make their case for fairer remuneration. The truth is that governance matters.

There are plenty of examples that can be found where a company's improved performance can be traced back to a change of those governing it.

It is not about being a "fat cat". It's about fairly rewarding those people who stand up, risk their reputations and seek to make a positive difference to NZ Inc through their contribution at the board table.

Cathy Quinn is chairwoman of law firm Minter Ellison.