Modest fee increases for Non-Executive Directors (NEDs) in 2014
30/01/2015
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Once again it’s time for our annual review of changes in board director fees.

For the boards that increased fees, the median non-executive director (NED) increase was 6.2%. The median increase for non-executive chairmen where there remuneration was increased was 6.8%. While that may appear high relative to executive increases, keep in mind that boards adjust fees only every other year, on average, rather than annually.

That table below indicates the distribution of fee increase for those that increased director remuneration. Note that total remuneration was considered unchanged if the change was less than 1%, in order to exclude the impact of superannuation adjustments and payroll timing over the two years.

Table 1: Non-executive director remuneration adjustments (where remuneration was increased)

 

Statistic

Chairman

Other NEDs

Sample Size

60

334

Average

10.2%

11.1%

25th percentile

3.0%

3.3%

50th percentile

6.8%

6.2%

75th percentile

12.2%

12.5%

 

When blended with boards that did not increase fees, or actually reduced fees, overall fee changes for all company directors have been conservative, with the median change in total remuneration for NEDs (that is both chairmen and directors, all inclusive) in 2014 a modest 0.9%.

Fee increases were lower than the 2013 median increase of 2.2% (click HERE for details) and the 3.3% median change in CEO total reward for 2014 (see HERE for details).

We derived our results by analysing the change in non-executive director remuneration from 2013 to 2014 with data downloaded from GuerdonData®. We compared individuals within the ASX 300 (excluding those with December year end) who were in the same role for all of 2013 and 2014.

To validly determine the rate of increase, we identified the NEDs who were in the same role for all of the last two financial years and looked at these changes (this is the ‘incumbent-weighted’ increase). The 802 such NEDs were drawn from 204 ASX 300 companies from all industries. The ASX market capitalisation of these companies ranged from $89 million to $155 billion,based on a 30-day average to 18 January 2015.

A 0.9% increase in NED total remuneration represents about $1,500 on the median fee of $160,000.

The average (as opposed to the median) incumbent-weighted increase was 3.3%.

Table 2 below shows a summary of the changes for chairman and directors.

Table 2: Median change in total remuneration and percentage receiving an increase/decrease

Statistic

Chairman

Other NEDs

Sample size

130

672

Median change in total remuneration

0.35%

1.14%

Percentage whose total remuneration increased

46%

50%

Percentage whose total remuneration was unchanged

35%

34%

Percentage whose total remuneration decreased

19%

16%

It is also important to note that some increases are the result of 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 additional responsibilities, such as more committee roles or other responsibilities attracting additional fees over the two years being considered.

For chairmen, the overall mix of cash fees, superannuation and share-based payments has remained stable over the past two years. However, directors have experienced a shift away from share-based awards, with the average mix for 2013 including 8% share-based payments compared with 2% in 2014. 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 3 summarises the overall 2014 disclosed NED remuneration structure.

Table 3: Overall mix of remuneration components

Position

Cash Fees

Superannuation

Share-Based Payments

Chairmen

91%

5%

4%

Other NEDs

91%

7%

2%

Table 4 shows the percentage of NEDs receiving each component of remuneration from 2012 to 2014. Keep in mind, the percentages are calculated based on different incumbents over the past three years.

Table 4: Percentage receiving each remuneration component

Position and Year

Cash Fees

Superannuation

Share-Based Payments

Chairmen 2014

100%

84%

4%

Chairmen 2013

100%

84%

4%

Chairmen 2012

100%

80%

9%

Other NEDs 2014

100%

83%

4%

Other NEDs 2013

100%

83%

6%

Other NEDs 2012

100%

79%

7%

Changes by industry

Median increases in fees were the largest for directors in the health care and utilities sectors (excluding chairmen), with the median change in total remuneration above 3%. The median change in NED fees in the materials sector was zero, with 35% of directors reporting an increase in fees.

Table 5: Median change in total remuneration for directors by industry (excluding chairmen)

Industry

Number of Non-Executive Directors

Median Change in Total Remuneration

Percentage Receiving

Increase

Consumer

165

1.0%

50%

Energy

27

0.4%

49%

Financial

140

0.4%

49%

Health Care

43

4.6%

74%

Industrial

114

1.8%

53%

Materials

125

0.0%

35%

IT & Telcos

49

2.9%

61%

Utilities

9

8.3%

56%

The data relating to the utilities sector is based on a small sample and reflects a significant fee policy adjustment by a single company.

The average fee increase of 7% within the IT & telcos sector was higher than the median increase. There were some significant increases in NED fees among these companies that directly reflect acquisition-based growth in size over the period.

Within the materials sector, 4 out of the 37 companies reduced NED fees significantly. This reflected significant reductions in profitability and/or size. This, combined with the reduction in the number of companies awarding equity in addition to fees, produced an average change in fees of -3% in this sector.

Figure 1 below shows the interquartile range for the increases in fees in 2014 by sector (the median increase is shown by the dark blue horizontal line).

NED%20Picture%201.png

Figure 1: Inter-quartile range of percentage change in total remuneration by sector

Changes by size

The 204 companies used in the analysis were split into quartiles based on market capitalisation. Since larger companies tend to have larger boards, the number of NEDs in the top quartile companies is higher.

Table 6: Median change in total remuneration for directors by company size

Market Capitalisation

Number of Directors

Median Change in Total Remuneration

Percentage Receiving Increase

>$3.1bn

232

2.3%

58%

$914m to $3.1bn

174

0.6%

48%

$372m to $914m

131

1.1%

50%

<$372m

135

0.2%

37%

NEDs of the largest companies received the largest median increase in total remuneration and were the most likely to receive an increase. The materials sector makes up a much larger proportion of the smallest group (30%) compared with the remainder of the sample (14%). This contributed to the lower median increase and lower proportion receiving an increase in this group. 

The inter-quartile range for the increase in total remuneration by company size is shown in Figure 2 below.

NED%20Picture%202.png

Figure 2: Inter-quartile range of percentage change in total remuneration by company size

Directors of larger companies tend to 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.

Changes in company cost of board fees

We also compared the changes in the overall company cost of board fees from 2013 to 2014. This includes the total amount spent on the entire board from year to year inclusive of board members who were there for only part of the period, but excludes termination payments. The median increase in total cost was 4.6% and the average increase was 9.2%. This is higher than the median and average increase in fees on an incumbent basis and therefore suggests an increase in the number of NEDs per board.

© Guerdon Associates 2021
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