Staff wage rises outstrip director fees increases

Fees paid to directors are not rising as quickly as staff wage increases and appear to have escaped the volatility created by the Covid-19 pandemic, the 2022 Directors’ Fees Report reveals.

The median non-executive directors’ annual fee rose 3.1% to reach $51,529 in 2022, up from $50,000 in 2021. This was less than the 7.1% fee growth seen in 2021, and less than the median wage increase of 4% in the year to June 2022 (Labour Cost Index).

The report, produced by the Institute of Directors (IoD) in partnership with Ernst & Young (EY), provides key information on director remuneration in New Zealand. It brings together data for 2,220 New Zealand directorships held by 809 members of the IoD across 1,413 organisations.

“The moderate growth in the median fee follows a large jump in 2021, which was itself a rebalancing after fees stalled in 2020 as the pandemic impacted,” says Michael Fraser, GM Learning & Branch Engagement at the IoD.

“What we have seen this year is closer to what we saw before the pandemic - in 2019 the median non-executive director’s fee rose 3% - so it may indicate a return to more normal times.”

Sense of value

The report found that most directors don’t think their fees adequately reflect their responsibility and the value they contribute through their governance work. There is a considerable risk of personal liability and reputational damage associated with the role and environmental, social and governance expectations are evolving and increasing fast.

“Given the increased scrutiny around compliance, the need to protect worker wellbeing, ongoing challenges around skills gaps and staff shortages, and focus on sustainability, the role of directors has never been more important. If they aren’t paid appropriately, we’ll struggle to attract the right talent to the sector and then everyone loses,” said Una Diver, EY New Zealand, People Advisory Services Partner.

This concern about fees is most pronounced with state-owned enterprises, Crown entities and Māori land entities.

“There appear to be similar issues with SOE directors, too,” Diver says.

But this may be starting to be recognised in the marketplace. Crown entity directors saw an average 8.3% increase in fees in 2022 compared with 2021.

“For Crown entities this likely reflects three important issues: the complexity of the public sector and the uncertainty of these roles, including relatively fixed tenure; the potential for a gap in fees levels between the public and private sectors that needed to be closed; and the need to retain and recruit strong governance talent for Crown entities,” says Fraser.

Chairs are generally being remunerated at levels that reflect their additional responsibilities, although smaller organisations and certain sectors don’t reflect this trend.

“Typically, chair fees are about 200% of other board members, representing the typical difference in workload and the fact that most chairs don’t receive additional committee fees,” says Diver. “Bigger organisations are closer to this level, but there is no particular pattern by size. Wholesale and retail trade and information, media and telecommunications have the smallest premium for chairs, despite the potential scale of the organisations in these sectors.”

Gender gaps

While women now make up 52.5% % of public sector boards, on average across all sectors only 31% of the directors surveyed for the report were women.

This imbalance is acute with non-executive and executive chairs (22.6% and 16.7% respectively are women).

“Director fee levels and the rate of fee increases for women and men remain significantly different, but we are seeing the gap close as more women take up higher-paying board roles, ” says Diver.

“The median fee for male non-executive directors has risen 7.6% over the past four years, and jumped 32.8% for women. This has brought the 2022 average fees for each gender much closer -$51,759 for men and $50,000 for women.”

Changes to board work

The nature of board work also continues to evolve to meet contemporary expectations. Respondents report more flexible working arrangements, more virtual meetings and sustainability committees are now more common.

“Sustainability committees seem to be meeting with the same frequency as the important audit and finance committees, and committee chair remuneration is similar between the two,” Fraser says.

“This reflects the increasing importance of sustainability considerations for many boards.”

This is the eighth year the IoD has partnered with EY to produce its Directors’ Fees Report, providing benchmarks to help organisations to set director fees. The research also provides insights to support the IoD’s wide-ranging services to support, equip and enable directors to add value to their organisations and wider communities.

The full 2022/23 Directors’ Fees Report contains comprehensive detail and is available for purchase. 

For more information, or to request an interview with Michael Fraser (GM Learning & Branch Engagement, Institute of Directors) or Una Diver (EY New Zealand, People Advisory Services Partner), please contact:

Mark Russell
Head of Strategic Communications
Institute of Directors
mark.russell@iod.org.nz

or

Jamie Foote
Senior Account Director
Acumen
jfoote@acumennz.com