To attract and retain the best people to your board to drive growth and performance for your organisation, you need to pay your directors a fair and reasonable fee.
Getting remuneration right has a greater impact than just making sure a director is adequately compensated for the time they spend in their role.
“It’s about fairly remunerating the directors on our board,” Wellington Airport Financial Controller Anthony Cox explains.
Regular review, using up-to-date comparator benchmarking data and best practice advice, is critical if boards are to keep pace with remuneration trends.
Working with the IoD was the right fit for Wellington Airport when they were looking to benchmark their board remuneration.
“It had been a few years since we had externally benchmarked our directors’ fee levels and we wanted to be certain that we weren’t getting out of step with the market,” says Cox.
“We were looking for an external benchmark and looked at the possible sources for that. We wanted a service that could provide a New Zealand focus and the right experience, knowledge and access to databases.”
Board Services Advisor Ellen Hodgetts is IoD’s director fees specialist and she works with a wide range of New Zealand businesses providing a range of DirectorRem services.
“Setting director fees is not a ‘one size fits all’ model,” Hodgetts advises.
“There’s no calculator for inputting variables and popping out a number. It’s about analysing available data; understanding the business, the industry, the ownership model, really viewing the market as broadly as possible before being in a position to make a recommendation.”
For clients who just need benchmarking data to inform their director fee decisions, a SnapShot report provides a high level view of the market and fee benchmarks relevant to the business. A tailored report provides a formal, independent and in-depth benchmarking review and appropriate fee range recommendations.
Tailored DirectorRem reports take into account the many variables that need to be analysed. These include the industry type, number of staff, time commitments of the governance roles, as well as the individual nature of an organisation and its complexity and risk profile. The report becomes a useful document to inform discussions and decision making.
Cox notes that engaging Hodgetts to undertake the tailored approach meant that Wellington Airport could benchmark itself against other organisations that they felt were actually comparable.
“We wanted to make sure that the comparatives were suitable to us. We looked at a mixture of listed and non-listed, public entities and private entities and saw that we were perhaps a little bit unique due to the regulatory environment we operate in.
“Ellen was very responsive and made the process very simple for us. At the end of the process we were comfortable that we could make comparisons with confidence.”
“While there are the published surveys [about remuneration], which are a bit more broad brush, this process made us realise the benefit of having the more tailored report done for us rather than relying on a more general survey.”
While director remuneration has not always been a topic that is easily discussed, the IoD believe it is in the interest of shareholders and New Zealand as a whole that great talent is attracted and retained on boards. Attracting the right people can have a direct correlation to company performance. The reward for the role must match the risk undertaken and skills brought to the table to ensure that talent is attracted and retained.
David Greenslade, Managing Director at Strategi Limited, agrees with this sentiment.
“I work with firms looking to get into the regulatory environment and this requires businesses to look at their governance structure. Often this means looking to recruit new directors.
“A key part of recruiting appropriate directors is knowing how much to pay them, for what level of input.
“For one of my clients we decided that rather than take a stab at setting fees ourselves, we needed to go to a knowledgeable, credible, independent source with access to wide ranging data and get them to give us a report on how much a director in this type of role, undertaking a particular type of work with certain time commitments, would cost.”
Hodgetts notes the importance of gathering appropriate information about a role, to ensure that any recommendation is well-informed.
“Asking the right questions and getting
a business thinking about the role that their board is being asked to perform is a crucial part to assessing the fee structure of that role.”
This information gathering process in itself can be a very useful process for clients.
“Going through the DirectorRem process had a whole lot of flow-on effects,” Greenslade says.
“Not only did it cement a realistic fee structure, but there were some unexpected learnings and it caused us to become a lot more structured in our approach to appointing directors.
“It forced us to go through a more in depth look at what the job descriptions would be for each of the directors and the chairman we wanted to appoint.
“Prior to that we just thought about it as a role - ‘we need a chairman, we need x number of directors with this sort of skill set’ - but we had never applied ourselves to thinking through how large or small the time commitment would be, and that was quite insightful for us.”
“The DirectorRem report became a key discussion document with the founding shareholders and directors as to how to move forward. It illustrated the cost to have a board but also what the business might achieve out of that type of expenditure. My clients had seen all the literature and knew they should have an independent board, or some independent members, but they had no idea how much that might actually cost.”
“In my business, working with firms needing to transition to a formalised structure, the board remuneration process is key.”