How to avoid big leaps in director fees

Director remuneration is rarely a comfortable boardroom conversation. Yet as governance expectations rise, organisations are recognising that regular, evidence-based fee reviews are about more than remuneration. They give boards evidence for fee decisions and can help attract the right governance capability.

For BRANZ, an independent, evidence-based approach has become part of its governance discipline.

“We’ve done it a number of times through the Institute of Directors,” says BRANZ Board Chair Nigel Smith MInstD. “Usually, every two years we’ll do a tailored fee review. The benefits we get from that are the independence and the market insight.”

As an incorporated society funded through the Building Research Levy, BRANZ has significant accountability requirements and multiple stakeholder groups.

“You’ve got a number of entities that you’re responsible to be open with,” says Smith. “The IoD gives us a well-known, well-valued assessment of the market.”  

Avoiding big leaps

One of the biggest advantages of regular reviews is avoiding sudden corrections after long periods of inaction, says Jo Birdsall, Senior Advisor in Remuneration and Board Services at the IoD.

“The advantage of doing it regularly is that there’s no giant leap in your fees to become market comparable,” says Birdsall. “You don’t suddenly realise you haven’t reviewed anything for 10 years and need to add another $12,000.”  

That is particularly important for membership-based organisations, councils and not-for-profits, where governance spending may attract closer scrutiny.

“It helps avoid that perception of ‘fat cats sitting around the board table’,” says Birdsall. “Independent benchmarking gives boards confidence that remuneration is market relevant and defensible.”  

Smith says regular benchmarking supports more measured and transparent conversations.

“If you leave it too long, it becomes reactive,” he says. “You bring on a new director, they ask about the fees and suddenly everyone realises you are well below market. Then you’re forced into much larger increases.”  

Governance complexity is changing

Conversations about director fees often focus only on how much directors are paid, rather than the complexity and responsibility of the role.

BRANZ Chief Executive Claire Falck MInstD says governance workload has shifted significantly in recent years.“

We’ve moved from a relatively stable operating environment into a much more active governance role,” she says. “There’s been a new strategy, changes across building and construction, and broader regulatory changes. That’s changed the amount of work the board is doing.”  

BRANZ has changed how its board operates, moving away from traditional committee structures towards more agile, focused governance discussions.

“We’ve shifted into more focused meetings and active engagement between governance and the executive,” says Falck. “It’s enabled faster delivery and more informed decision-making, but it also means directors are spending more time and engaging differently.”  

Birdsall says organisational complexity is a critical factor in tailored remuneration reviews.

“It’s not just industry and revenue,” she says. “You’re also looking at governance workload, operational complexity, regulation and the broader environment the organisation is operating in.”  

Independence matters

Birdsall says independence is important because stakeholders need confidence in how fee decisions are made.

“Particularly from a shareholder or stakeholder perspective, people want to know it’s not just directors deciding to pay themselves more,” she says. “Independent benchmarking brings credibility to the process.”  

That independence also supports mature boardroom conversations at BRANZ.

“The board has a very open and frank discussion around the time, effort and value directors are bringing,” says Smith. “But you need accurate information and you need a safe environment to have that conversation properly.”  

Falck says the process also works because it is supported by strong internal input and evidence.

“The CEO contributes to the process, too,” she says. “We help provide a realistic reflection of the workload, the number of meetings, the size of board packs and the operational environment. That rigour is important.” 

Governance maturity and continuous improvement

BRANZ links remuneration benchmarking with board review and other continuous improvement work. “This goes hand in hand with reviewing your skills matrix and reviewing board performance,” says Smith. “It should form part of the board’s annual work programme.”  

BRANZ also undertakes periodic external reviews of board and executive culture.

“We regularly review how the board and executive are working together,” says Falck. “There are always recommendations that come out of those reviews and we actively work through them.”  

Birdsall says more boards are placing remuneration benchmarking in this broader governance context.

“You should be benchmarking your fees and evaluating your board,” she says. “There’s a lot of churn in governance, and organisations need to make sure they’re attracting the right people and valuing that expertise appropriately.”  

Practical advice for boards

Smith says boards considering a first fee review should start with an open mind and make sure the boardroom is a safe place for the discussion. “Getting the information is one thing. Using it constructively is another,” he says.

Birdsall also encourages boards not to leave reviews too long.

“Even if you discover you’re below market, you can still work through it gradually,” she says. “The important thing is starting the process.”  

Regular reviews can make director fee discussions more evidence-based, less reactive and easier to explain to stakeholders. 

Jo Birdsall, IoD’s Senior Advisor – Remuneration and Board Services

Our expertise

Our fee reviews are prepared by IoD’s Senior Advisor – Remuneration and Board Services, Jo Birdsall, using robust methodology and peer review and build on the IoD’s Four Pillars of Governance Best Practice. Jo has been part of the Institute of Directors for eight years. She began as a Professional Development Advisor, organising and hosting IoD governance courses across Aotearoa New Zealand. This role gave her a strong understanding of the board environment and the challenges directors face, while also building a broad network of directors across a variety of sectors. Jo has managed the IoD’s Director Remuneration Service for the past three years, providing specialised advice and unique insight on director time commitments, responsibilities, and remuneration practices across a wide range of organisations. Her work spans NZX-listed companies, iwi organisations, not-for-profits and charities, and Crown entities.Jo works closely with boards and organisations to support fair and transparent director remuneration. If you would like to discuss your board’s remuneration approach or learn more about IoD’s director fees services, Jo would welcome the opportunity to speak with you.  For director fee enquiries, contact Jo on 021 193 1208 or jo.birdsall@iod.org.nz