Byline: Bruce Sheppard
This article asks questions in a deliberately inflammatory manner!
During September, the Herald on Sunday ran a column to attempt to explain the conundrum... Why directors are paid so much and why are their pays rising faster than the wages paid to those on the shop floor?
I commented on this topic and the themes that were reported, accurately, but out of context were these:
The job of a director is simple or, put another way, is not hard. Remuneration for a public company director is about $30,000 per basic directorship yielding an income for a full-time professional director of $150,000 per annum, thus directors in general are overpaid not underpaid, and finally that the job of a director of a public company is akin to community service.
One prominent public company director summed up the likely reaction of your readers to such thoughts when he described my quoted comments as those of a "deranged socialist".
What is driving director pay and what should be driving it?
Director pay is being driven by three key factors, none of which are relevant. The first is directors' perception of themselves. I have heard prominent directors at IOD conferences deal with the vexed issue of director reward by saying that a professional full-time director is akin to a senior partner in a law or accounting firm and should be paid accordingly. That is how they come up with $80,000 to $150,000 per annum per directorship. It is interesting that directors think of themselves as accountants and lawyers.
Directors who regard themselves primarily as accountants and lawyers should not be serving on boards. What lawyers and accountants may be paid is of no relevance to the worth of a director.
The second factor is international comparisons, both as to general levels of fees and fees relative to size and risk. What Australian directors get paid is mostly irrelevant to the service of directors in New Zealand.
Why should directors be paid for taking risk? All public companies pay Directors and Officers insurance to protect them from financial risk personally, they cannot and should not expect to be indemnified against reputation risk, and nor should they be paid to take such risk. …