Directors fees: The pressure is on

Half of board members say 4 per cent rise not enough in face of heavier workload and increased scrutiny.

Just on half the country’s directors aren’t happy about their pay as workload piles up and more face the axe for poor performance.

Directors Institute chief executive Simon Arcus said while there had been a “moderate” 4 per cent increase in the past year, workloads had almost doubled, reflecting an environment where boards are facing more scrutiny and regulation than ever before.

Survey data shows only 50.6 per cent are satisfied with their remuneration. Median fees for private listed companies were $78,570, up 22 per cent over the past four years.

The institute has close to 7000 members and today made public its annual survey of pay and workload among private firms, publicly listed companies and state owned enterprises. Arcus warned there were areas of concern and trends emerging including:

Poorly performing directors are losing their jobs more often as the pressure to perform grows.

Executives, incentivised by performance bonuses, are staying for shorter tenures and increasingly need to be balanced by directors with a longer term outlook.

Investment heavyweights are worried about the lack of diversity on boards.

The gap between fees on SOE boards and private sector companies has grown to worrying levels.

Arcus said investors – and that included anyone with a KiwiSaver account – needed to take note of directors’ performance.

“If you have a KiwiSaver plan you should be thinking about the quality of directors,” he said. Although he would not cite specific examples, more boards were ousting non-performing directors.

“The days of the trophy director are over, the days of directors who aren’t serious about the business are over. In my view a director who doesn’t perform at the top table doesn’t survive long.”

Workload was increasing with directors experiencing an average 41 per cent increase in time worked due to increased company complexity and Financial Markets Conduct Act requirements.

He said board members on a typical construction industry company last year had a 96-hour commitment, including meetings and meeting preparation. This had grown to 152 hours a year for the past year.

The median for private listed company fees were $78,570 this year, compared to $36,000 for SOEs. In the survey private listed companies and private companies made up more than 50 per cent of respondents, the remainder from the not-for-profit sector, government and local government boards.

Arcus said it was an issue that needed to be discussed.

“My concern is that as long as that gap grows the risk that quality [directors] won’t be interested in serving the public grows as well. That’s not about greed or avarice it’s about a fair reward for a job done.”

He said New Zealand-owned company director fees were on average 58 per cent less than overseas-owned companies last year but this had grown to 63 per cent less.

Devon Funds executive chairman Paul Glass said directors appeared to have become more responsive to investors in the past five years.

“It feels as if there’s a general acceptance that shareholders are owners of the business and have a vested interest in making sure the governance is good.”

One of the biggest issues was the shortage of skills, especially apparent when New Zealand companies made mistakes investing overseas.

“We’d love to see the pool of directors broadened to include young people and more of those with direct CEO experience rather than lawyers and accountants.”

He welcomed the removal of non-performers.

“If that’s happening it’s a very positive development. The problem with evaluating board performance is that’s there’s not much visibility, they all meet behind closed doors. Unless someone is a serial value-destroyer it’s quite hard to pinpoint individuals.”

Boards must diversify, chief says

New Zealand companies risk repelling investors if they don’t diversify their boards, says Institute of Directors chief executive Simon Arcus.

According to an IoD-NZIER sentiment survey, of current serving directors, 64 per cent agree diversity is a key consideration in making new appointments.

In that survey, female non-executive directors comprised only 15 per cent of the total sample; for Maori non-executive directors the figure is 1.6 per cent and for Asian directors just 0.1 per cent.

Blackrock is one of the largest global investment funds and in Asia Pacific has concerns about the makeup of boards and cites evidence that companies with more diverse directors perform better.

“They’ve said that when they look at the way a company performs, diversity is one of the key benchmarks. That’s the bottom line – it’s a profit and loss issue, not a warm fuzzy.”

Arcus said it was not just a gender issue.

“You get into a battle of the sexes but we’re talking about diversity of thought – ethnicity, age and sexuality,” he said.

Devon Funds executive chairman Paul Glass said training and mentoring programmes were helping diversify board tables but there was some way to go. “You do tend to have a bit of an old boys club in terms of directorships and it is very hard for women and young people to break in to them,” he said. A Brian Gaynor column last month reported leading countries in terms of women on boards are Norway, where women have 38.9 per cent of board seats, Finland 32.1 per cent, France 28.5 and Sweden 27.3.

A study of the 16 largest NZX companies shows that 20.8 per cent of board seats are held by women. Two of the 16 companies, Port of Tauranga and TrustPower, have no women directors.

Of the 16 largest NZX companies, 25 of the 120 directors were women.

These 25 were from a pool of 23 women directors as two of the women are on more than one board.

These are Justine Smyth, who is on the Auckland International Airport and Spark boards; and Geraldine McBride, who is a director of Fisher & Paykel Healthcare and Sky TV. None of these 16 companies have a woman chief executive and Joan Withers, who chairs the Mighty River Power board, is the only woman chairperson.

– NZ Herald