As we begin calendar 2008 in earnest, many boards are wondering whether another review of non-executive director (NED) pay is in order. It seems to many boards that NED pay increases are accelerating.

They are right.

Whereas it used to be the norm for the board to review director fees every few years, the gap between reviews is narrowing. Many boards are now reviewing NED fees annually. A quick review of the rate of change in NED pay may assist boards to consider whether they should review director pay this year. As in the past, GuerdonData® is the first publicly available database to capture pay trends based on the latest disclosures. You, as a subscriber to GuerdonNews®, are the first to receive the latest trend analysis for board pay.

As of the end of 2007, the majority of ASX 300 listed companies with financial years ending up to 30 September 2007 had released their annual reports with remuneration disclosures. To validly determine the rate of increase, we look at same incumbent data. That is, we identified the 872 NEDs (including chairmen) who were in the same role for all of the last two financial years. Of these 745 were deemed to be independent. They are drawn from all industries, with ASX 300 company market capitalisation ranging from $41 million to $141 billion.

The median 2007 change in NED Total Compensation (TC) was 7.3%. The average was skewed significantly higher at 21%.

Increases in fees are primarily responsible for TC increases and reductions in share based payments are the main cause of decreases.

Does Industry Affect Compensation Changes?

NEDs in the energy and utilities sectors received the highest median TC increases, of 17.8% and 19.5% respectively. NEDs in the consumer discretionary sector received the lowest median increase, of 2.3%.

It is apparent that the percentage of NEDs in an industry sector receiving an increase is lower for sectors with lower median TC increases. This is logical, because the median rate of increase will be lower for sectors with more zeros and TC reductions in the sample.

Does Size Matter?

In general, bigger organisations (as measured by market capitalisation) were more likely to increase NED compensation (see Figure 2).

 

Additionally median NED total compensation increased much less rapidly in companies below $500m market capitalisation than in bigger companies (see Table 3 and Figure 3).

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