Directors’ fees on the move?

Director fees appear to be in a state of flux, reflecting volatility in the business environment, says EY Oceania People Advisory Services Partner Una Diver.

“The landscape for directors is changing,” Diver says. “We have seen a lot of activity around fee movements over the past 18 months.”

EY and the Institute of Directors (IoD) produce an annual Directors’ Fees Report, which is due out in August. The survey of directors that informs the report is underway and IoD members received an email invitation to participate on Wednesday 3 April.

Diver says the Directors’ Fees Report is an essential tool for understanding and setting director fees and urges directors to engage with the survey and share their experiences of changing workloads, changing stakeholder expectations and fee movements.

“I think it would be a mistake for organisations to think that, because the economy is not as strong as we would like, that the report will reveal little pressure on fees – because the workload for directors, the expectations on directors, just continue to ratchet up.

“When seeking to understand what is fair and appropriate in the current market, this is a vital tool and a foundation for decision making.”

While it is primarily focused on fees, the report can throw light on interconnections throughout the governance ecosystem, says IoD General Manager Dr Michael Fraser.

It provides boards with useful insights into the industries they work in and the evolving expectations on directors. For respondents, it is an opportunity to consider the work they do, and what value ought to be put upon it, Fraser says.

“For directors contributing to the research into this report, I think it is a useful inflection point. It is a chance to pause and reflect on your fees, your responsibilities and your personal risk,” he says.

“It also looks at directors’ workloads and the legal exposure that directorships bring, so it provides insights into the broader governance environment that can inform the debate about where director fees really should be set. This data gives you a basis point for a decision. With the right information, you can make better decisions.”

Past Directors’ Fees Reports have challenged some of the common ideas about governance, such as that all directors are overpaid.

“Successive surveys have shown that is simply not the case. There tends to be a balance struck between the resources of a particular organisation, the market and considerations of fairness,” Fraser says.

Diver adds that fairness ought to be the key consideration for directors and fee setters.

“This report is invaluable to people on both sides of that equation. It’s about valuing directors fairly and being prudent, but realistic. I’m not sure that undervaluing that role today would be the right thing to do, today, in an economy which is going to be uncertain for some time.”