Chairman Pay and Workload
05/03/2007
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Since the introduction of CLERP 9 there has been a significant increase in the workload of most directors and board chairmen.  Over the same period there has been an above average increase in fees.  It has been postulated that this remuneration increase is the result of increased workload.  If so, some argue, then there should be a difference in board chairman pay according to their workload.  Guerdon Associates has researched this, and the results are not what hardworking chairmen may want to hear.

Guerdon Associates extracted data for all non-executive board chairman positions from GuerdonData®.  This data comes from Australian ASX 300 companies and is based on 2006 disclosures.  We also extracted company financial data from Aspect Huntley as at 12 February 2007.

We focused our analysis on individuals who are deemed to be independent, to minimise any peripheral effects on remuneration.  For example, we found a high proportion of non-independent chairmen receiving remuneration that varied considerably from market normative standards, and that most had high levels of personal shareholdings in the company. We also excluded companies whose market capitalisation was less than $30 million, dual listed companies and companies with chairmen based off shore.  We were left with 170 individuals.

We examined the relationship between pay and workload.  The most reliable measure of workload that we have is the total number of meetings held and attended.  This includes both board and committee meetings.  Table 1 summarises the total number of meetings held and attended for the sample as a whole.
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The smallest number of meetings held was nine at Minara Resources.  There were three companies whose chairmen were expected to attend 120 meetings or more.  These were Transurban Group, James Hardie and Lion Nathan.  The number of meetings relates to factors other than company size.  Both Transurban and Lion Nathan have been acquiring other businesses and the James Hardie board had significant difficulties resolving compensation arrangements relating to asbestos related diseases.

Our analysis showed that the total number of meetings held explained 25% of the variation in total compensation.  Figure 1 plots total compensation by the total number of meetings held.  While there is an upward trend in total compensation as the number of meetings increases, there is a significant amount of variation that cannot be explained in terms of workload.
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There is a weak relationship between the number of meetings and the size of the company.  Figure 2 shows the increase in meetings held as market capitalisation increases.  The blue bars represent the inter-quartile range (25th percentile to the 75th percentile, or middle half) of total compensation data and the yellow dash is the median (or 50th percentile).

The trend becomes apparent for companies with very large market capitalisation.
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In conclusion, there is no evidence to support the contention that chairman pay is influenced significantly by workload.  This is not to say that a board need not adopt a remuneration policy that takes this into account.  We know of no governance guidelines that precludes such an approach. 

© Guerdon Associates 2021
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