Non-executive directors received a 3.8% increase, according to latest disclosures
04/02/2013
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The median change in total remuneration for all NEDs (both chairmen and directors) in 2012 was 3.8%.  This was lower than both the 5.1% median NED fee change in 2011 (see HERE) and the 7.7% median change in CEO total pay for 2012 (see HERE

We analysed the change in non-executive director remuneration from 2011 to 2012.

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 762 such NEDs are drawn from ASX 300 companies in all industries, with market capitalisation ranging from $52 million to $190 billion(as at 1 February 2013).

A 3.8% increase in NED total remuneration represents about $5,900 on the median fee of $154,000.

The average incumbent-weighted increase was higher at 7.9%. 

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

Statistic

Chairman

Directors

Sample size

134

628

Median change in total remuneration

4.3%

3.8%

Percentage whose total remuneration increased

58%

54%

Percentage whose total remuneration was unchanged

33%

36%

Percentage whose total remuneration decreased

9%

10%

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.

For directors (excluding chairmen) whose total remuneration increased, increases in cash fees accounted for 89% of the increase in total remuneration, the remainder being share-based payments, typically options. For directors experiencing a decrease in total remuneration, reductions in share-based payments are the sole cause, with cash fees remaining essentially unchanged.

The overall mix of cash fees, superannuation and share-based payments has remained stable over the past two years for non-chairman NEDs.  There was a small change in the pay mix for chairmen, for whom cash fees comprised 92% of total remuneration, representing a 4% shift from share-based payments to cash fees compared to the 2011 mix.  For both chairmen and other NEDs, the average size of share-based payments has decreased although. based on disclosed remuneration, more NEDs received such payments.

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 2012 disclosed NED remuneration structure.

Table 2: Overall mix of remuneration components

Position

Cash Fees

Superannuation

Share-Based Payments

Chairmen

92%

5%

3%

Other NEDs

88%

7%

5%

Table 3 shows the percentage of NEDs receiving each component of remuneration in 2010, 2011 and 2012.

Table 3: Percentage receiving each remuneration component

Position and Year

Cash Fees

Superannuation

Share-Based Payments

Chairmen 2012

100%

80%

9%

Chairmen 2011

100%

83%

5%

Chairmen 2010

100%

85%

7%

Other NEDs 2012

100%

79%

7%

Other NEDs 2011

100%

76%

5%

Other NEDs 2010

99%

77%

10%

The change in share-based payments is summarised in the graph below, which shows the inter-quartile range of share-based payments. The amounts for the directors in 2011 seem very high, especially compared to chairmen, but do not forget that the chairmen in the sample do not necessarily come from the same companies as the directors due to exclusions based on part-year incumbents. 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 in the resources sector.

2013%20NED%20Fee%20Range.png

Does Industry Affect Remuneration Changes?

The energy, materials, and telecommunications & IT sector directors (excluding chairmen) received the highest median total remuneration changes at 5.2%, 5.0%, and 5.2% respectively. The health care sector was the least likely to increase fees and awarded the smallest increases, with zero 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

Percentage Receiving

Increase

Consumer

116

3.7%

52%

Energy

50

5.2%

68%

Financial

99

2.2%

40%

Health Care

31

0.0%

32%

Industrial

141

4.0%

60%

Materials

146

5.0%

58%

Telco & IT

24

5.2%

67%

Utilities

21

0.1%

43%

 

The energy and materials sector directors received the highest proportion of total remuneration in the form of share-base payments, at 19% and 12% respectively.

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

Percentage Receiving Increase

>$4bn

174

3.3%

53%

$1.3bn to $4bn

157

3.8%

53%

$600m to $1.3bn

141

4.3%

57%

<$600m

156

3.7%

53%

The likelihood of receiving an increase in total remuneration and the size of the increase is not clearly related to company size. Consistent with 2011, companies with market capitalisation between $600m and $1.3bn were the most likely to award an increase from 2011 to 2012, and awarded the largest increase in remuneration. 

The inter-quartile range for the increase in total remuneration is shown in Figure 2

2013%20NED%20Fee%20Range%20two.png

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.

The most notable difference between the companies in different size segments is that only the smallest companies have increased their share-based payments, as a percentage of total remuneration. Large companies have practically stopped share-based payments, with companies in the largest size segment paying only 0.5% of total remuneration in share-based instruments. Companies in the $600m to $1.3bn and $1.3bn to $4bn size segments decreased their share-based payments to 3.7% and 10.4% of total pay, respectively. The smallest companies have continued to increase share-based payments, consistent with our findings in 2011. The proportion of total remuneration awarded in share-based payments by the smallest companies increased to 10.1% in 2012, up from 7.5% in 2011.

© Guerdon Associates 2021
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