Magazine article New Zealand Management

TABLED: Board Director Fees Still on the Table

Magazine article New Zealand Management

TABLED: Board Director Fees Still on the Table

Article excerpt

Byline: Sherry Maier

In todayCOs environment, reviewing director fees Co let alone adjusting them Co might seem to be a losing proposition. John KeyCOs message about freezing MP pay levels and tightening belts has been received loud and clear. The entire corporate market watched attentively as Contact EnergyCOs October bid to increase board fees was roundly ridiculed and ultimately withdrawn. Vector made a feint and then nobly stood down.

And throughout this period it seems obvious that the public is confused about the role of a board versus the role of management. The board is held accountable when the stock price drops, but given no credit when the stock price rises. Does that make sense? When things go wrong, who is to blame?

Surely we have all drawn the obvious conclusion that board fees, regardless of level or other circumstances, are untouchable in 2009. Simply off the table for discussion.

But not so fast. Businesses are now operating in largely uncharted waters. Have companies ever relied so heavily on the wisdom, experience and judgement of their boards? The quality and timeliness of decision-making by boards is absolutely critical and may literally result in life or death for those businesses. The stress, workload, and pressures on boards are soaring.

But of course, since today it might be unpopular to review or raise board fees, the public will expect our directors to soldier on for what are regionally and internationally Co in absolute and relative terms Co unusually low fee levels. The median non-executive director base fee in New Zealand according to the Sheffield 2008 Director Survey was $30,000. This compares with a median CEO pay package of $275,000, per the Sheffield 2008 CEO Survey. Of course I realise that a directorship is not a full-time job, but given the time requirement on a director in times of strife, the order of magnitude difference certainly gives one pause. In todayCOs world, which job would you rather have?

What is a board to do? One problem is largely self-inflicted. Boards tend to review board fees every two, three or even four years. This is in distinct contrast to executive and manager pay which is rigorously reviewed annually. No CEO would tolerate going three years between pay increases. Since base fee levels are typically low to begin with, and since past Sheffield surveys confirmed that when board fees are increased, the median annual rate has been 15 percent, it is not surprising that when a market increase is calculated and proposed, it is often a percentage increase of 50 percent, 75 percent or even 100 percent. …

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