Board Chairman Remuneration Trends – Take Care With Those Statistics

Would you believe:

  • 14% of non-executive chairmen had their remuneration cut from 2004 to 2005
  • On average Total Fixed Remuneration (TFR) of chairmen increased by 15% for the same period
  • Chairman TFR increased by almost 50% in the energy sector

These findings, while accurate, do not provide a balanced view of recent remuneration trends for non-executive chairmen. At Guerdon Associates, we aim to see through the noise in remuneration data to the true underlying trends. This most recent research looks at the changes in fee levels and structures received by chairmen.


The median increase to directors’ fees for the role of non-executive chairman from 2004 to 2005 was 8%. The biggest increases were for chairman within the industrial sector. The smallest increases were for chairman of companies with a market capitalisation below $300m.

Guerdon Associates regularly conducts analyses to measure the current trends in remuneration for executives and directors of listed Australian companies. The methodology and outcomes, with commentary on likely trends, are provided under the sub headings below.


We extracted remuneration information for individuals who hold the position of non-executive chairman of the Board, as reported in the last two years of annual reports (i.e. 2004 and 2005 annual reports), from the GuerdonData® database. Companies with a market capitalisation of less then $50 million were excluded, as were chairmen who had only served part of the 2004 or 2005 reporting year.

The data was matched to company data, such as market capitalisation, as at 7 August 2006.

In all, we identified 171 individuals. We analysed the group as a whole and also broke the sample down by industry and company size. Data was analysed for cash, superannuation, equity, total fixed remuneration (TFR), short term incentives (STI), long term incentives (LTI), and total remuneration (TR). TFR is the sum of cash fees, superannuation, non-monetary benefits, and non-incentive based equity. TR is the sum of TFR, STI and LTI.

The way in which remuneration is reported can make this analysis problematic. Equity payments and retirement provisions can be large (relative to fees) and are often irregular so that total fixed remuneration (TFR) and total remuneration (TR) tend to be quite volatile. This was further complicated by the change over to the AASB 124 disclosure standard that utilises IFRS accrual standards for costing superannuation, whereas the prior AASB 1046 standard used a cash basis. Cash and fees are more stable, but salary sacrifice practice (for super or shares) can influence this trend too.

Findings – Overall

Figure 1 shows the proportion of Chairmen who received increases to cash/fees and TFR.


Sixty-six (66%) percent of chairmen received increases to cash fees. Of those receiving an increase, half received an increase of over 20% in cash fees. Of those whose cash fees reduced, it was typically a result of fee sacrifice for equity or superannuation.

Sixty eight (68%) percent of chairmen received increases in TFR. Of those receiving an increase, 45% received an increase of over 20%. A reduction in TFR results when equity grants were awarded in the previous year, but not the current year. They also result when – for accounting purposes – superannuation is accrued and disclosed one year but not the following year.

The decreases and zero increases are included in the average and median statistics for the size of increase and help to offset the opposite problem of equity and superannuation benefits being reported in the current year, but not the previous year. These produce extremely high increases, especially in TFR, which do not necessarily imply a permanent increase in remuneration.

Tables 1 and 2 summarise our overall findings. To illustrate how a small number of very large increases can skew the average upward, we have included both average and median data. The median (or middle data point) is much less volatile than sample average.


The year-on-year change is the increase in the average from 2004 to 2005. The average % change is the average of each of the individual increases (or decreases).


The year-on-year change is the increase in the median from 2004 to 2005. The median % change is the median of each of the individual increases (or decreases).


The statistics in table 3 indicate that STIs and LTIs are now very rarely awarded to non-executive chairmen. There was a small decrease in the proportion that received an equity reward – excluding LTIs – but the average value of the reward increased by more than 27%.

The TFR and TR increase (on a year-on-year basis) was less than the cash increase. This can be explained by the continuing trend to reduce retirement benefits to the statutory minimum superannuation level in response to governance groups’ concerns about “lucrative” NED retirement benefits. The impact of unwinding retirement benefits is likely to wane markedly in this year’s disclosures as most companies have made their adjustments already.

To some extent, the unwinding of retirement benefits has resulted in an increase in equity payments. Governance groups have supported the increase in this form of reward. However, it has not been sufficient to entirely offset the decrease in retirement benefits, so TR and TFR increases (which include equity) have not been as great as cash increases.

Findings by Industry

Figures 2 and 3 illustrate the changes in cash/fees and TFR by industry group. They show how a few large increases can skew the overall average increase.


Average equity rewards have decreased in the consumer discretionary group; that is why the increase in TFR is relatively low. An 84% increase in the size of equity payments to board chairmen within the energy sector, explains the large (almost 50%) average increase in TFR from 2004 to 2005. The median increase in the energy sector was 5%.

The low rate of increase in the finance sector is not expected to continue. Increased regulatory loads imposed by the Australian Prudential Regulatory Authority (APRA) this year have increased the workloads of NEDs, and particularly chairmen, considerably. Therefore, we expect this sector to show a marked increase in chairman remuneration levels over the next two years.

Table 4 illustrates the frequency of equity-based remuneration provided to chairmen by industry and the average and median value of the reward for 2005.

The participation rates have dropped in the health care and consumer discretionary sectors and increased in the finance sector. The participation rates have remained similar for the other sectors.


The year-on-year increase in equity awards in the energy and health sectors was more than 50%. This is due to large equity payments to individuals in these sectors. Because the samples become small as the data is divided into industry groups, the extreme data can give misleading results. The health care group has only five individuals receiving an equity payment and the energy sector only one. Therefore, one large payment has a disproportionate impact on the results. Although the results are correct, they should not be interpreted as a trend.

The largest average equity awards are in the finance sector.

Findings by Market Capitalisation

Although there is a meaningful relationship between board remuneration and market capitalisation, this is not the case in relation to the size of the remuneration increases. The correlation between market capitalisation and the increase in cash/fees is 0.05 and 0.06 with the increase in TFR.

Figure 4 and 5 illustrate the median and average change in the cash and fees and TFR by market capitalisation. Again, they show how a few large increases can skew the overall average increase and provide a misleading indication of the size of the increase in remuneration.



Although the size of the increase did not relate strongly to market capitalisation, the likelihood of receiving an increase did. Companies with market capitalisation over $1bn were more likely to increase fees between 2004 and 2005, than smaller companies as illustrated in figure 6.


Table 5 illustrates the frequency of equity-based remuneration by market capitalisation and the average and median value of the reward for 2005. The participation rates have dropped slightly for all groups except the largest companies. In this group the percentage receiving equity payments has increased from 16% to 22%. This should not necessarily be interpreted as a trend, however, since (because of the nature of these rewards) the situation could be reversed next year.


There was a substantial increase in the average equity reward for the companies in the smallest size grouping and the $1bn-$5bn group. These can be explained by the presence of one very large equity reward to the chairman of a small health care company and the chairman of a large energy company. When these individuals were excluded from the analysis, the averages reduced to $47,763, and $54,972 respectively, which are in line with average 2004 equity rewards.

The group with the largest companies has significantly larger average equity rewards. This is consistent with other components of remuneration for these companies.


Overall, remuneration for the non-executive chairman position increased by 8%, from 2004 to 2005. Larger companies are more likely to increase fees, however, the actual percentage increase appears to be independent of company size.

Few companies provide at risk payments, in accord with governance standards. There is a trend for the remainder to remove all at risk payments, with a consequent increase in equity payments that are not at risk. Around 20% received an equity payment of between $30,000 and $40,000, with the exception of the finance and energy industries where the equity rewards were substantially higher.

© Guerdon Associates 2024
read more Back to all articles