Australian Non-Executive Directors (NEDs) give up shares and super for cash

The median 2010 change in NED total compensation was less than 1%.  This was lower than the 2.5% median increase in CEO remuneration summarised by us in December (see HERE).


While the total value of NED remuneration has not increased, there has been a significant shift in how directors are opting to structure their remuneration.


We analysed the change in non-executive director remuneration from 2009 to 2010 using GuerdonData®.


To validly determine the rate of increase, we look at same incumbent data.  That is, we identified the 768 NEDs who were in the same role for all of the last two financial years.  They are drawn from all industries, with ASX 300 company market capitalisation ranging from $77 million to $152 billion (as at 28 January 2010).


The median 2010 change in NED total compensation was 0.3%.  That’s about $400 on the median fee of $133,307! 


The average incumbent-weighted increase was skewed significantly higher at 8.6%.  This skewing is due to a small number of large increases in fees and/or share-based payments.

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Note that some increases are as a result of increased responsibilities rather than an increase in fees.  That is, because we are considering only NEDs who have been in that role with the same company for at least two years, they tend to be on average more experienced than a sample that includes NEDs who have only been in the job for a year.  Hence, as more experienced NEDs, they may have been allocated more committee or other roles attracting more fees over the two years being considered.


Increases in cash fees are wholly responsible for total compensation increases; in fact, superannuation and share-based payments reduced on average for NEDs for whom total compensation increased. For NEDs experiencing a decrease in total compensation, reductions in share-based payments are the main cause, accounting for 61% of the reduction.


There was a significant reduction in share-based payments and superannuation across the sample of NEDs.  The following graph shows the make up of NED total compensation in 2009 compared with 2010. Chairman and NEDs are shown separately. The graph starts at 50%.

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The following table summarises the overall change in NED remuneration structure. The statistics are based on the change in the sum of each component of remuneration for the whole sample from 2009 to 2010.

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The reduction in superannuation is due to a reduction in the average size (-18%) of superannuation contributions, presumably prompted by the reduction in the maximum contributions limits. The number of NEDs making contributions has remained stable.

The reduction in share-based payments is significant, although individual payments actually increased by 35%. The sharp decline is due to the significant reduction in the proportion of NEDs opting to sacrifice fees for equity.  This follows the introduction of the $5,000 pa cap on salary sacrifice share purchases under the revised employee share plan tax regime that was introduced from 1 July 2009, but may also be a reflection of uncertainty in the equity markets.

The following table summarises the percentage of NEDs receiving each component of remuneration in 2009 and 2010.

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Does Industry Affect Compensation Changes?


The health care and Telecommunications/IT sector NEDs received the highest median total compensation changes at 3.0% and 2.9% respectively.

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Does Size Matter?


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


The smallest companies (less than $400m market capitalisation) were the most likely to abandon their share-based payments, which fell as a proportion of total compensation from 12% to 2%.


The likelihood of receiving an increase in total compensation is not clearly related to company size.  The largest and smallest companies were the most likely to award an increase from 2009 to 2010.  Chairmen were less likely than other NEDs to receive an increase regardless of company size. 


The following graph shows the proportion of NEDs receiving an increase in total compensation.

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Additionally, there was a small upward trend in median NED total compensation increases as market capitalisation increased.


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The inter-quartile range for the increase in total compensation is shown in Figure 3

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© Guerdon Associates 2024
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