Some suggest that part-time non-executive directors (NEDs) who meet monthly, to review papers prepared by management, cannot challenge a full-time CEO who is across all details of the business. Although better performing boards regularly seek independent advice, the information asymmetry may be said to be difficult to overcome for effective governance. The counterview is that the collective wisdom of NEDs with diverse and in-depth specialisations should be sufficient counter-weight to the CEO’s company specific knowledge. Remuneration research over the decades seems to support the latter view. This has shown that a key driver of fixed pay levels is depth, breadth and application of knowledge and experience. It follows that the total fees paid to NEDs that is at least equal to that of the CEO’s fixed remuneration represents knowledge and experience that are applied to business also equal to that applied by the CEO.

So, as we have done in the past (see HERE) we test whether the governance is as it should be by checking that the sum of NED fees is at least the same, or greater, than CEO fixed remuneration.

In the lead up to the GFC, CEO pay had been swiftly outgrowing aggregate board fees. However, our findings in 2016 were that a potential reversal was on the horizon. Undertaking the same analysis 10 years later, this reversal has indeed arrived. In 2024, 61% of CEOs in the ASX 200 were paid fixed remuneration less than or equal to aggregate NED fees.

Comparing the total pay in the statutory table of ASX 200 CEOs and NEDs, the median company has moved from paying its CEO 10-15% more than its board to paying its CEO 10% less.

Table 1: CEO and NED pay ratios in 2024, 2023, 2015 and 2014

	2024	2023	2015	2014
Average	101%	102%	119%	130%
25th Percentile	77%	78%	89%	96%
50th Percentile	89%	93%	109%	115%
75th Percentile	116%	119%	139%	150%

 

So why the shift?

We have observed that the ratio does vary either side of 100% over time, supported by the table above. Among the many hypotheses is that in times when company returns are on a cyclical high, CEO salaries do relatively well, and vice versa. Based on the evidence, that does not hold up well in recent times, given equity market returns.  Another explanation might be that the baseline level of skills required for NEDs has expanded consistently over the past decade. Corporate governance scrutiny has also increased, with shareholders more comfortable voicing their dissent (see our strikes article HERE and equity grants article HERE). Therefore , director workload has increased and pay has followed. That is, the collective board hours as much as board knowledge and experience is a contributing factor.

We often talk to directors who are concerned that their pay is not keeping up with director workloads, while recent years have seen pay inflation across the broader workforce. CEO pay, meanwhile has actually gone backwards since 2011 for top companies (see HERE). Given this, the change in ratio potentially reflects a stagnation in CEO pay more than NEDs claiming additional pay for higher workloads.

Finally, the change could also reflect an expansion in incentive pay while fixed pay stays the same or reduces. The aggregate board cost is all the NEDs receive in most cases, while CEO fixed pay is only a portion of their overall pay. For some companies RSUs (guaranteed pay for most purposes) have become a substantial component of pay that is not captured in fixed remuneration data.

Trends by Company Size

CEO and NED pay vary with company size. Both CEO and NED pay are observed to scale with market capitalisation as seen in Figure 1.

Aggregate NED fees grow faster than CEO fixed remuneration as market capitalisation increases, as can be seen from the trend line in the graph. The median ratio of CEO to NED pay is 103% in the bottom 50% of companies by market cap and 81% in the top 50%.

This may be due to larger companies providing a greater portion of CEOs’ total remuneration as variable pay. Additionally, larger companies tend to be more operationally complex which warrants more board seats, which in turn are more demanding.

Figure 1: ASX 200 CEO fixed pay and NED fees against logarithm 1-year Market Capitalisation

Trends by Sector

Table 2 shows the CEO to NED pay ratios by sector. The Consumer Discretionary sector had the greatest median CEO pay to NED fees ratio in both years of data with 117% (2023: 124%). The lowest ratio was observed in the Information Technology sector with 73% at median (2023: 71%) which may be the result of greater proportions of at-risk and equity pay, and/or higher CEO demand and lower supply in this sector. Worryingly, it may suggest that technology company boards may not have what it takes to challenge the CEO in a complex field.

Table 2: Median CEO pay to aggregate NED fees ratio by GICS sector

 

Conclusion

Overall, the news is good. It suggests that the collective wisdom of boards is sufficient to challenge the CEO. But this masks variations in industries in NED fee to CEO fixed remuneration ratios and, perhaps, governance standards.

Methodology

We analysed the ratio of CEO and NED pay in ASX 200 companies in 2024 and 2023. CEO pay and NED pay, comprising aggregate fees paid to NEDs in each company, was sourced from annual statutory disclosures.

Companies were excluded from the analysis if they:

• Had an executive chair
• Had joint CEOs or did not have a traditional CEO role (e.g. Founders)
• Had a part year CEO
• Had a CEO that waived a traditional fixed remuneration package

Market capitalisation was sourced from LSEG Workspace and was taken as the 1-year average over the 2024 calendar year. Our final sample consisted of 153 companies for 2024 and 163 companies for 2023.

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