Moyle Consulting senior consultant Sherry Maier says with the Australian economy not being as affected by the global downturn as New Zealand, businesses did not experience the virtual freeze in director fees that occurred in New Zealand in late 2008 and throughout 2009.
“In past surveys, we have anticipated that transTasman commerce and mobility would arbitrage board pay differences over time. The gaps are now so wide, we believe they are insurmountable and permanent. The fear is, of course, that habitually undervaluing and under-rewarding good governance and strategic leadership in New Zealand hinders national economic growth and further widens the performance gap with Australia.”
The annual Moyle Consulting Director Remuneration Survey shows that after near freeze during 2009, when only 20% of surveyed organisations raised base annual director fees, 2010 saw return to more typical year with 40% of organisations raising fees. These results are consistent with the usual company policy of reviewing fee levels every two, three, or sometimes four years, says Maier.
However, she says pervasive caution is still apparent. Although more organisations increased fees in 2010, the median-fee movements were the lowest recorded in the six-year history of the survey. Non-executive director fees rose only 8.7% year-on-year, well below the 15% to 20% annual increases consistently seen in the past.
“In order to stay abreast of the market, we strongly advise businesses to review board pay annually – like executive pay – and make modest, incremental moves. This strategy avoids periodic large ‘catch-up’ increases,” says Maier.
The conservatism and caution in fee levels is particularly evident in the public sector, where the Moyle survey finds there has been little movement in fee levels in recent years.
Moyle Consulting’s calculations indicate that median board fees within the public sector have risen 23% since the first survey in 2005, compared with 50% increase in listed company board fees. Over the five years from 2006, however, the public sector increase has been only 9%. Taking annual inflation into account, fees have gone backwards in real terms, says Maier.
“How sustainable can this be for hardworking, able directors in the public sector who often work as diligently as their private or listed company peers, and who confront comparable legal, financial and reputational risks?” she asks.
Low absolute fee levels and limited movement in New Zealand’s proportionately large public sector have wider implication and depress the overall director fee market, she says.
Despite the “lid” on the market, some of the pressure has been relieved by the use of daily consulting fees that reward directors for transactions, projects or other special expertise, says Maier. The Moyle survey indicates that 44% of companies now support this practice.
Another strategy is evident in the use of committee fees. In 2006, only 30% of organisations reported paying separate committee fees. By 2010, 48% of companies did so. “Such payments reflect an ‘unbundling’ of the fee structure and provide greater transparency and accountability – practice we endorse,” says Maier.
“However, these strategies do not solve the underlying problem of the low base annual directors’ fee levels paid by many organisations. This issue has to be of national concern, for surely the quality of governance is critical influence on New Zealand’s economic health. If the rewards do not provide fair recompense for the responsibility, then we fear that the quality of governance may suffer.”
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