RECOGNISE GOVERNANCE EXCELLENCE
Board Remuneration Strategy
Board Remuneration
Directors fees need to be equitable and appropriate for company size and the market in which it operates.
Directors bring their expertise to contribute to business success and ensure that governance obligations are met. They seek to focus management on the company’s core purpose. This needs to be recognised and rewarded.
Board Remuneration: A Critical Focus
The role of the Board is critical to organisational success. Shareholders, regulators and other stakeholders continue to demand greater accountability from Non-Executive Directors (NEDs). Fair and equitable remuneration is essential. And yet this part of remuneration strategy is often neglected by directors themselves. Remuneration Committees devote considerable energy to CEO and executive remuneration and often overlook their own reward. An equitable board remuneration strategy is essential to recognise directors for the very considerable contribution they make to company success.
A few factors to consider in formulating board remuneration strategy:
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One
There are distinct markets for non-executive director remuneration: larger listed companies, privately owned corporations, government entities and SMEs all have very different NED remuneration practice.
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Two
When setting NED fees boards need to ensure that they have access to up to date information and analysis. The few board remuneration surveys that are available tend to show quite diverse practice. Specific data for your sector needs to be sourced where available.
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Three
Board fees need to be reviewed annually. Market movements generally tend to be more modest than those reported for the executive remuneration market. But not by much. Our analysis of movement in board fees over the last five years is set out below.
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Our focused approach to setting board fees can help you get it right and ensure your directors receive fair and reasonable compensation for the expertise they bring to the boardroom table. Contact Geoff Nunn on +61418 595 107 or email gtnunn@gna.net.
Our board fee setting process:
First and most importantly we hold discussions with the board chair and the chair of the remuneration committee. This is a fact finding mission. We need to know about the organisation, its size, structure, ownership and the markets in which it operates.
We discuss the structure of the board itself. Its charter, board committees, the levels of experience and expertise required to be a NED in this company.
We look to source appropriate board fee data. This might include using data from published board surveys, annual reports of listed and government entities or from our database of board fees.
We develop fees structure options for presentation to the remuneration committee and board.
Directors are not generally driven by remuneration. But it needs to be pitched right to ensure you can secure the best and most experienced to meet your governance requirements.
The NED market has flattened over the last few years.
Our analysis of the NED market indicates that it has been flat for the last 3 years. Many utility companies have not increased board fees since the pandemic hit in 2020. We expect a modest re-bond in 2024.
“Directors fees need to reflect company size, scope and complexity of operations, the market in which the company operates and the skill sets required of NEDs. There is no one size fits all.”
Geoff Nunn, Board Advisor and Remuneration Specialist, July 2021