The role of the Board is critical to organisational success. Shareholders and regulators continue to demand greater accountability from board members and directors. Fair and equitable remuneration is essential.
A range of factors need to be taken into account when establishing remuneration levels for non-executive directors in Australia:
The overall remuneration market for directors as measured through various board remuneration surveys;
The nature of the director's role on the Board - such as chairman, deputy chairman, committee member;
Organisation type such as listed company, private company, mutual society, government owned corporation, statutory authority.
Organisation size as measured by gross turnover, assets, market capitalisation, earnings before interest and tax.
Remuneration practice for non-executive directors has been characterised by relatively fixed structures.
Some companies have introduced share and option plans for directors. These focus energy on performance and allow directors to share in the success of the company.
Others argue they are inappropriate under ASX guidelines.
Some government organisations pay board members and non-executive directors on a sessional basis; usually a fixed daily rate determined by government policy (often upon recommendation from the relevant remuneration tribunal).
Very few Australian organisations link non-executive directors'
remuneration to organisational performance. The ASX 'Principles of Good Corporate Governance and Best Practice Recommendations' .
Specifically Principle 9 'Remunerate Fairly and Responsibly' addresses the issue of directors remuneration. It contains two seemingly
contradictory statements:
'The company should design its remuneration policy in such a way that it:
"Motivates directors and management to pursue the long term growth and success of the company within an appropriate framework." P 54.
And yet further in Box 9.3: Guidelines for non-executive director remuneration:
'1. Non-executive directors should normally be remunerated by way of fees; they should not participate in schemes designed for the remuneration of executives.
2. Non-executive directors should not receive options or bonus payments'.
Geoff Nunn & Associates can provide expert advice on Board remuneration and develops remuneration structures appropriate for the organisation's operating environment. We also provide expert advice on executive remuneration strategy to Board Remuneration Committees.
