Can you set CEO fixed pay based on total Non-Executive Director fees?

For another perspective on CEO pay, we have examined the relationship between current CEO fixed pay and total non-executive director (NED) fees for S&P/ASX 200 companies. The ratio of CEO fixed pay to total NED fees was analysed in relation to company size. For ASX 20 companies we further analysed changes in the ratio of CEO to NED fees from 2012 to 2014 and in relation to current CEO tenure.


We found that the relationship between CEO fixed and NED fees varies according to company size and developed benchmark ranges of reasonable CEO fixed pay in relation to total NED fees. We also found that the relationship has changed since 2012 within the ASX 20 and confirm that new incumbent CEOs have fixed pay that is lower than that of longer standing CEOs, relative to total NED fees.




We analysed the total fees paid to S&P/ASX 200 NEDs based on 2014 disclosures and compared these to the fixed pay of the company CEO. Termination payments were excluded from NED fees and one-off awards, such as sign-on payments, were excluded from CEO pay.


Companies were excluded from the analysis if they:

·         Had an executive chairman

·         Had joint CEOs

·         Do not pay any fees to the chairman

·         Did not disclose both NED and CEO pay in 2014

·         Have not yet disclosed 2014 remuneration 


Our analysis is based on the remaining 169 companies from the January 2015 ASX 200.


Relationship to company size


Table 1 below shows statistics relating to the sample analysed. Market capitalisation represents the average value over calendar 2014. The ratio statistics are based on the 169 individual ratios, not the pay percentiles. CEO fixed pay and total NED fees are strongly related, with a correlation coefficient of 0.76.


Table 1: CEO fixed pay and Non-executive director fees


CEO Fixed Pay

Total NED Fees

Ratio of CEO pay to NED Fees

2014 Market Capitalisation






25th percentile





50th percentile





75th percentile






Figure 1 shows the actual 2014 CEO fixed pay and NED fees, plotted against a logarithmic market capitalisation scale.


Figure 1: ASX 200 CEO fixed pay and NED fees plotted against market capitalisation


The graph shows that, on average, CEO fixed pay (in blue) exceeds total NED fees (in red) for companies with market capitalisation up to $10bn and drops below NED fees for larger companies. This is consistent with established pay and company size trends whereby larger companies generally structure pay with proportionately lower fixed pay and higher incentives.


Table 2 provides benchmark ranges for various bands of company size. The Low CEO end of the range might apply for a newly appointed CEO, or in companies with a highly incentive leveraged pay structure. The higher end of the range might apply to longer tenured, more experienced CEOs or a low incentive leveraged structure.


Table 2: Benchmark CEO fixed pay based on Non-executive director fees

Market Capitalisation

Low CEO pay

Median CEO Pay

High CEO pay























Relationship with CEO tenure


We have previously noted the trend within larger companies to award significantly lower fixed pay to new incumbent CEOs, relative to their predecessors. The trend is also evident in this analysis. Figure 2 shows the relationship between tenure and CEO pay as a percentage of total NED fees in 2014 for ASX 20 companies. The R squared statistic for the relationship is 34%.



Figure 2: ASX 20 CEO fixed pay as a percentage of NED fees plotted against tenure



Changes over time and by sector


ASX 20 results for 2014 were compared with results based on equivalent 2012 disclosures. Overall the average CEO fixed pay as a percentage of total NED fees has reduced from 102% in 2012 to 93% in 2014. The standard deviation has also decreased, from 31% to 20%. The reduction is attributable to an increase in average total NED fees of 4% from 2012 to 2014, while average CEO fixed pay has not changed.


Table 3 summarises the changes from 2012 to 2014. Note that some of the samples are small.


Table 3: Changes in ASX 20 CEO fixed pay and NED fees from 2012 to 2014





Average CEO Fixed Pay




Average Total NED Fees




Average Ratio of CEO to NED




Finance Sector Ratio (n=8)




Resources Sector Ratio (n=4)




Other Sectors Ratio (n=6)





There has been a 13% reduction in the standard deviation in NED fees among ASX 20 companies. This convergent trend, suggests companies are adjusting NED fees to align them with benchmark ASX 20 practice.


Figure 3 shows the overall flattening effect of changes from 2012 to 2014 plotted against company size. The market capitalisation value used relates to average values for calendar 2012 and 2014, respectively.




Figure 3: ASX20 CEO fixed as a percentage of NED fees plotted against market capitalisation


The finance and resources sectors have experienced relatively small reductions and CEO fixed pay now represents around 90% of total NED fees on average in these sectors. This is a lower ratio than in other sectors, primarily because of the higher NED fees in finance and resources companies. In the finance sector this is probably related to the workload associated with compliance with APRA regulations. Higher fees in the resources sector probably relate to the global nature of their business.


Sectors other than finance and resources experienced a significant reduction in the average ratio of CEO fixed pay to total NED fees, down from 120% in 2012 to 101% in 2014. This is attributable to a 5% drop in average CEO fixed pay and a 12% increase in total NED fees in ASX 20 companies, other than finance and resources companies.

© Guerdon Associates 2024
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