Internationalising The Board? Pay Levels Not The Issue For Big Aussies

Many Australian companies have outgrown their domestic markets.  They need to become international.  Some are already there.  Yet many boards shy away from seeking greater international diversity on their boards.  Pay and the “tyranny of distance” are the most cited issues blocking international director nominations.  While we cannot comment authoritatively on the “tyranny of distance” issue, we can put to bed the pay myth. 

We analysed US and Australian director pay.  While there are differences in pay structure, there are no appreciable differences in pay levels in the largest and smallest companies. Figure 1 shows total compensation for Australian NEDs versus US NEDs, broken down by company size.
June Graph

Figure 1 shows that the difference in total remuneration for our biggest (as well as smallest) companies is not significant.  Many of the big companies tend to be international, having outgrown their domestic markets.  Many of them also have foreign based directors on the board. 

The story is different for the mid size companies. But the difference is still only about 25 percent of pay for companies between AUD$200million and AUD$600 million in revenues.  Unlike CEO pay, where US compensation is typically 3 to 5 times that of Australian CEOs, the difference is not significant, particularly if we consider differentiating pay for just one director on a board of, say, 5 other non executive directors.  The difference in NED pay is resolvable in any number of ways.  For example, boards have the power to differentiate NED pay based on country of residence if they wish.  There are few constraints.  In fact, most boards have shareholder approval for board fees with enough room to do this easily. 

While not included in the analysis, most large US companies froze director retirement benefits in the late 90s.  So if superannuation is added to the Australian figures, the difference in total remuneration levels would be even less. 

In our analysis NED total compensation is the sum of cash fees and equity.  The graphs below compare the proportions of each for both Australian and US non executive directors. 
June Charts

US NEDs still receive a large proportion of their compensation in options or shares.  But the trends in US and Australian NED pay are coming together.  Most US boards are changing their mix away from options and towards shares for NEDs, while Australian companies are moving to take up governance recommendations that 25% of NED fees be paid in shares. 

Recently two of Australia’s largest companies announced the appointment of Americans as non executive board directors, subject to shareholder approval.  BHP Billiton nominated Paul Anderson, formerly CEO of Duke Energy, and BHP prior to its Billiton merger, while Telstra nominated John Zeglis, formerly head of AT&T Wireless.  Both nominations make eminent sense, providing these boards with experience that could not be found in Australia.  If technology and mutual commitment can overcome the tyranny of distance, then Australian boards should consider much more fertile recruiting grounds for seeking the diverse experience they need to be internationally competitive.

© Guerdon Associates 2024
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