This reflects an environment where boards are facing more scrutiny and regulation than ever before, according to the institute’s 2015 Directors’ Fees report, which was conducted with EY.
Simon Arcus, chief executive, Institute of Directors, notes that despite the median increase in non-executive directors’ fees by 4 per cent, most directors (88 per cent) saw a median increase of 41 per cent in time commitment.
“The right balance between risk and reward is critical to attracting skilled, competent and diverse talent to your board table,” says Arcus.
“We think there could be pressure on director remuneration levels in an era of increased liability and compliance. Our members tell us the burden of compliance has grown. What New Zealand needs is highly skilled, fairly remunerated directors. It’s not enough to say there are plenty of directors lining up out there: New Zealand needs a focus on quality not quantity.”
We need directors who are courageous but for whom the risk and reward balance in remuneration makes sense.
Una Diver, EY partner, says the relatively modest increase in directors’ fees is a concern.
“Do their current pay levels mean we don’t adequately value the critical governance role directors perform? We know the regulatory landscape is changing significantly, meaning it is critical that people with the right mix of skills are attracted to governance roles.”
The survey shows only 50.6 per cent are satisfied with their current level of remuneration, Diver says.
“Many variables need to be considered when determining a fair and reasonable fee,” says Arcus.
“Directors play a central role in the economic health of our country. Economies are about confidence, directors are the backbone of that confidence. I am not afraid to say that directors are worth it. We pay directors to do the right thing not the commercially safe thing,” says Arcus says.
“That can involve taking risks. New Zealand needs directors who are courageous but for whom the risk and reward balance in remuneration makes sense.”
Mind the gaps
The report also notes progress has been slow on diversity in the boardroom.
It’s time to see the diversity statistics improve.
According to the IoD-NZIER Director Sentiment survey, of current serving directors, 64 per cent agree diversity is a key consideration in making new appointments. Nevertheless, female non-executive directors comprise only 26.9 per cent of the total sample; for Māori non-executive directors, the figure is 4.7 per cent and for Asian directors, 0.2 per cent.
“There are good economic arguments for getting the right skill mix, and gender, onto boards,” Diver says. “Research shows even one woman on a board can enhance its performance. It’s time to see the diversity statistics improve.”
Arcus, meanwhile, notes the increased disparity in another area between New Zealand and overseas owned companies.
“In 2014, NZ-owned company director fees were on average 58 per cent less than overseas-owned companies. This year it is 63 per cent less,” he says.
Related: Ascent of the digital board director
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