Magazine article New Zealand Management

Reviewing Directors' Fees

Magazine article New Zealand Management

Reviewing Directors' Fees

Article excerpt

THE issue of directors' fees is interesting. The arguments are not complex. Good quality directors are in demand and short in supply. Quality directors have choice and can opt to go to companies where their skills are valued and appreciated. It follows that a company that refuses to pay for quality people will eventually lose good contributors from the board.

So it is logical that a company must be prepared to pay to have those skills and experience available to it and so create a stable board. Considering the level of revenues generated by companies, the cost of directors' fees is often relatively small compared to the benefit of having steady governance.

A board will always have to walk a line of logic and emotion in this type of debate and will often be pulled into what are essentially highly emotive shareholder politics-of-the-moment and naturally, the target at an annual shareholders' meeting, are the directors--who better to 'have a go at'?

At a recent ASM I chaired, the board proposed a resolution to increase directors' fees. It was timely in the sense that a review of fees had not been done for four years, but it was subjected to rigorous debate between directors. The review had been carried out by independent consultants and the recommendation was to increase directors' fees significantly to bring them into line with average fee levels in similar sector companies.

There is never a good time to suggest an increase in directors' fees and least of all when shareholders are suffering in the primary industry export sectors and are feeling the impacts of a high Kiwi dollar and increasing costs. Many growers are working extra hard to maintain their livelihoods, prices are low and there is little optimism for a positive change in the near future. While the downturn is cyclical, the company also suffers and becomes a vent for stressed growers to relieve some frustration, even though that may relate to pressures that are far beyond the company's control.

Consequently, the resolution was lost and the increase in fees denied by shareholders. This was not surprising given the economic issues facing shareholders.

However, the company and the board have a responsibility to all directors to remunerate their role to a level that is comparable to other like-sized companies and to pay fees to independent directors that attract a high level of skill and competence to the board table. …

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