Article

Director remuneration benchmarking challenges

by Joanne Peulen, Board and Governance Specialist

In the realm of director remuneration, ASX-listed entities have traditionally served as the cornerstone for benchmarking assessments. However, for organisations beyond this sphere, the path to informed decision making can be more challenging. This article explores alternative data sources and key factors that inform our director remuneration advice, and provides insights to the recommendation process.

ASX-listed director remuneration data is a common starting point for many director remuneration reviews. Since listed entities are required to fully disclose their director remuneration, it is readily available and free to use for commercial purposes. Many service providers use data-collection software to cost-efficiently collect it, and some even sell access to the datasets they amass doing so.

But what if your organisation is not a listed entity? Is ASX director remuneration still a valid benchmark?

The answer is NO. Or at least, not without additional inputs to the interpretation process.

Data sources

There is non-executive director fee information other than that of listed companies, if you know where to look and are willing to invest a little more effort in doing so. This can sometimes mean purchasing survey result reports, but typically it just comes down to industry experience and networks.

There are some national executive and board remuneration surveys carried out annually that cover the full cross-section of organisation types – just check their survey pool is sufficiently large to provide credible results. Industry associations often undertake remuneration surveys for their sector and the payments made to directors of government or government-related entities are publicly disclosed also. And then of course, a range of organisations voluntarily disclose director remuneration in the notes to their financial statements.

Range of factors that inform directors fees

At Directors Australia, we believe determining director remuneration requires consideration of a range of factors and multiple data sources. This is principally because no two companies are the same.

Clearly, a small to medium-sized not-for-profit organisation delivering community services has vastly different performance drivers and disclosure obligations to that of an ASX300 company in the mining sector. Director fee levels amongst the same organisational type operating across different industry sectors will differ too, because the skillsets, experiences and ongoing time commitment expected of non-executive directors differs.

But also, a recommendation supported by multiple points of data is just good advisory practice.

Data interpretation

We consider it advisable to first seek data comparisons for the same organisation type, then industry sector, and then scale and complexity. Only by understanding where an organisation sits relative to its peers, can one then know where they should be positioned against relevant director remuneration benchmarks.

The focus should then turn to board composition, committee structures and annual work plans, and how the existing workload and time commitment of directors compares to that of peers in comparable organisations.

  • What is the frequency and duration of meetings?
  • Do director duties extend beyond traditional board and committee meeting attendance?
  • Is there an expectation of travel or representation at various stakeholder events?

And then finally, how does the workload and time commitment of particular board roles compare to others within the board itself.

  • What is the Board Chair/President to base director fee ratio?
  • Are committee workloads shared evenly across board members?
  • Does the board supplement its skill-base with external committee members?

When a board remuneration structure fails to align compensation with relative effort or an individual’s opportunity cost, this can have a negative impact on board dynamics and director attraction and retention longer term.

Directors Australia works with the boards of publicly listed, government, private, APRA-regulated and not-for-profit organisations to achieve real, ‘best fit’ corporate governance appropriate to the organisation’s nature, and thus enhance board and organisational performance.
As part of our service offering we advise on non-executive director remuneration, drawing on our extensive experience in working with boards.

To learn more, visit https://directorsaustralia.com/board-and-governance-advisory/

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