Modest fee increases for Non-Executive Directors (NEDs) in 2013
22/01/2014
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The median change in total remuneration for all NEDs (both chairmen and directors) in 2013 was 2.2%. This was lower than both the 3.8% median NED fee change in 2012 (see HERE) and the 2.8% median change in CEO total pay for 2013 (see HERE).

We analysed the change in non-executive director remuneration from 2012 to 2013 using GuerdonData®. To validly determine the rate of increase, we look at same-incumbent data. That is, we identified the NEDs who were in the same role for all of the last two financial years. The 845 such NEDs are drawn from ASX 300 companies in all industries, with market capitalisation ranging from $28 million to $191 billion, based on a 30-day average to 22 January 2014.

Using regression analysis, there continues to be a strong relationship between NED fees and company size. A 2.2% increase in NED total remuneration represents about $3,294 on the median fee of $150,000.

The average incumbent-weighted increase was higher at 4.9%.  

Table 1: Median change in total remuneration and percentage receiving an increase/decrease

Statistic

Chairman

Directors

Sample size

138

707

Median change in total remuneration

1.0%

2.6%

Percentage whose total remuneration increased

41%

48%

Percentage whose total remuneration was unchanged

55%

44%

Percentage whose total remuneration decreased

4%

8%

Note that some increases result from increased responsibilities rather than an increase in fees. A sample of NEDs who have been in that role with the same company for at least two years will, on average, be more experienced than a sample that includes NEDs who have only been in the role for one year, and is therefore more likely to include directors who have been allocated more committee or other responsibilities attracting more fees over the two years being considered.

Large increases or decreases in total remuneration generally result when a significant equity grant is made in one disclosure period and not the other. These grants are increasingly rare, but are typically made by resources companies with limited cash flow to fund NED fees. These outcomes do not impact median results. For directors (excluding chairmen) whose total remuneration increased, increases in cash fees are the sole cause, with share-based payments remaining essentially unchanged.

For directors experiencing a decrease in total remuneration, reductions in share-based payments are the main cause, accounting for 70% of the reduction, the remainder being cash fees.

The overall mix of cash fees, superannuation and share-based payments has remained stable over the past two years for NEDs. The small change of pay mix compared to 2012 pay mix represents a small shift from share-based payments to cash fees, reversing the findings from 2011 to 2012. Overall the median size of share-based payments has increased slightly while the frequency has decreased. It is important to note that while disclosures identify all grants of equity made in addition to fees, they do not necessarily identify equity purchased through fee sacrifice.

Table 2 summarises the overall 2013 disclosed NED remuneration structure.

Table 2: Overall mix of remuneration components

Position

Cash Fees

Superannuation

Share-Based Payments

Chairmen

94%

5%

1%

Other NEDs

92%

7%

2%

Table 3 shows the percentage of NEDs receiving each component of remuneration in 2011, 2012 and 2013. Keep in mind, the percentages are calculated based on different incumbents over the past three years.

Table 3: Percentage receiving each remuneration component

Position and Year

Cash Fees

Superannuation

Share-Based Payments

Chairmen 2013

100%

85%

3%

Chairmen 2012

100%

80%

9%

Chairmen 2011

100%

83%

5%

Chairmen 2010

100%

85%

7%

Other NEDs 2013

100%

82%

3%

Other NEDs 2012

100%

79%

7%

Other NEDs 2011

100%

76%

5%

Other NEDs 2010

99%

77%

10%

On an individual company basis, chairmen typically receive share-based payments that are larger than those granted to other directors on the board. Also the sample size for those who received share based payments is small, which can produce volatile interquartile ranges. The large share-based payments occur primarily among the smaller companies in the resources sector.

  

Do NED remuneration increases vary by industry?

The energy, and telecommunications & IT sector directors (excluding chairmen) received the highest median total remuneration changes at 5.0%, and 5.1% respectively. The finance sector was the least likely to increase fees and the utilities sector awarded the smallest increases, with 0.5% median total remuneration change.  

    

Table 4: Median change in total remuneration for directors by industry

Industry

Number of Non-Executive Directors

Median Change in Total Remuneration

% Receiving

Increase

Consumer

151

1.0%

44%

Energy

37

5.0%

68%

Financial

118

1.3%

34%

Health Care

46

1.4%

39%

Industrial

136

2.8%

50%

Materials

146

2.3%

49%

Telco & IT

46

5.1%

78%

Utilities

27

0.5%

44%

      

At 15% of total remuneration, energy sector directors received the highest proportion of pay in the form of share-base payments, compared with to 2% or less in all other sectors.

Does size matter?

Overall, company size did not materially impact median increases in total remuneration. Company size was measured using market capitalisation.

Table 5: Median change in total remuneration for directors by company size

Market Capitalisation

Number of Directors

Median Change in Total Remuneration

% Receiving Increase

>$4.7bn

180

2.9%

48%

$1.5bn to $4.7bn

175

3.0%

50%

 $450m to $1.5bn

171

3.7%

54%

<$450m

181

0.0%

38%

The likelihood of receiving an increase in total remuneration and the size of the increase is not clearly related to company size. Consistent with 2012, companies with market capitalisation between $450m and $1.5bn were the most likely to award an increase from 2012 to 2013, and awarded the largest increase in remuneration.

Directors of larger companies have more consistent increases in fees over time. That is, there are fewer very large increases or decreases in fees among larger companies. This may be due to the higher regularity of fee increases in this group, the high degree of scrutiny of this group of companies, and the mature stage of relatively low growth at which most now operate.

Large companies have effectively ceased providing share-based payments, with companies in the largest size segment and in the $1.5bn to $4.7bn size segments paying only 0.1% and 0.2% of total remuneration in share-based instruments, respectively. Companies in the $450m to $1.5bn size segment and in the smallest size segment, decreased their share-based payments to 4.8% and 4.7% of total pay, respectively.

© Guerdon Associates 2021
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