Transparency in setting board fees

While director remuneration can be complex, the Institute of Directors says setting fees should be fair, defensible and transparent.

In a statement released following calls from the New Zealand Shareholders Association to reform the way director fees are set, IoD Governance Leadership Centre GM Felicity Caird says that it’s important for organisations to think beyond compliance and proactively disclose director payments.

“Consistent and open reporting of director fees helps build trust and confidence in business and corporate governance.”

“There are many variables at play when setting board fees but good governance requires a robust approach to reviewing and establishing where they land,” she says.

“Independent guidance from a specialist – external to the organisation – is one way that can help an organisation ensure fees are fair. It is important to follow good governance, accountability and disclosure practices, including demonstrating the robust processes and data used to help set fees.”

To support transparent and consistent disclosure of director remuneration, the IoD developed a guide to disclosing director remuneration which is publicly available and can be used by any organisation.

Under section 161 of the Companies Act 1993, the setting by the board of director remuneration, termination payments or other director benefits must be fair to the company. In addition, under the NZX listing rules, the remuneration of directors (either collectively or individually) of listed companies is subject to authorisation by shareholders.

“We support the transparency requirement for director fees not just for listed companies but for all organisations – that’s governance best practice,” Caird says.

To meet the requirements and guidance contained in the NZX Corporate Governance Code 2019 (Recommendation 5.2), the IoD, which offers a director remuneration service, supports clients sharing part or all of its independent remuneration reports. 

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