Non-Executive Chairman Remuneration Update

Guerdon Associates’ annual review of non-executive chairman pay confirmed that company size, while not everything, explained a lot. 

Guerdon Associates extracted data for all non-executive board chairman positions from GuerdonData®.  This data comes from Australian ASX 300 companies and is based on 2006 disclosures.  We also extracted company financial data from Aspect Huntley as at 12 February 2007.

We focused our analysis on individuals who are deemed to be independent, to minimise any peripheral effects on remuneration.  For example, we found a high proportion of non-independent chairmen receiving remuneration that varied considerably from market normative standards, and that most had high levels of personal shareholdings in the company. We also excluded companies whose market capitalisation was less than $30 million, dual listed companies and companies with chairmen based off shore.  We were left with 170 individuals.

Table 1 summarises the remuneration for all of the non-executive chairmen in the sample.
0507 chair rem summary table 1.jpg

We expected to see a relationship between market capitalisation and total compensation.  Our analysis confirmed that market capitalisation explains 60% of the variation in total compensation.  As market capitalisation increases this relationship becomes stronger. 

We ranked the sample based on market capitalisation and then divided it into four equal groups.  The following graph illustrates the variation in total compensation as market capitalisation increases.  The blue bars represent the inter-quartile range (25th percentile to the 75th percentile, or middle half) of total compensation data and the yellow dash is the median (or 50th percentile).

0507 chair rem and mkt cap fig 1.jpg

Larger companies are also more likely to provide post employment benefits (superannuation) and share based payments.  Of the group containing the largest companies, 98% provided superannuation benefits and 40% provided share-based payments.  This compares with 76% and 15%, respectively, for the remainder of the sample.

In conclusion it can be said that non-executive chairman remuneration is still primarily guided by company size.  However, this is not to say that other factors cannot or should not play a significant role in determining chairman remuneration, as 40% of the level of chairman pay cannot be explained by company size.  These other factors we have also researched and published elsewhere.  They can include factors such as workload and complexity.

© Guerdon Associates 2024
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