South African non executive director fees are rising significantly in what looks like a compensation to the increasing intricacies of roles.
This can be taken out of the 2012 review of non executive director trends compiled by consulting firm PWC. The PwC report examined the boards of 373 companies listed on the JSE.
According to the review the overall median fee for non executive directors increased to R276,000 in 2012 from R242,000 in 2011. “This is still relatively low by global standards and has remained in the R200,000 to R300,000 range for the past three years,” says Gerald Seegers, Director for Human Resources Services at PwC.
The review notes that the current fee is 14% higher than the previous year’s fee. While there is much debate as to whether current fee levels are appropriate given the level of risk non-executive directors are exposed to, the double digit increase seems to suggest that these considerations are coming into play when determining non-executive directors pay.
“If one links the issue of risk and potential personal liability to non-executive directors’ pay, then it is fair to say that the level of increases is not unexpected despite the notable increase in risk,” says Seegers.
The review says after remaining stable for two years, the median chairperson fee across the entire sample has risen by 11% to R394,000. “The increase in fees has tended to follow the global trend,” says Seegers.
Increases in fees for non-executive directors within the financial services sector have varied. The median fee for non-executive directors in the large cap sector has risen 26% to R728,000 per annum. The basic resources sector has to a large extent been affected by adverse trading conditions, particularly in the second half of 2012. The large cap sector has experienced the most moderate of the increases with median fees rising 19% and fees at the upper quartile rising by 9% to R1,06 million.
Within the diversified services sector, increases in the large cap sector have gained some traction after having declined in 2012. The median non-executive director fee has increased to R505,000 annually. Within the large cap industrial sector, the median non-executive director fee has increased substantially to R889,000 from R505,000.
The report also notes that in line with previous years, the role of the chairperson of an AltX company has not received any notable increase in fees. The median AltX chairperson fee has increased by 3% after having declined over the past two years by 27% in 2010 and 11% in 2011. Non-executive directors operating in the AltX environment have experienced notable increases with the median non-executive director fee rising by 25% in 2012 to R114,000.
The review, notes that duties and responsibilities of South Africa’s non-executives directors continue to be increasingly broadened in the wake of new legislation and corporate governance principles.
“The continuing focus on corporate governance and the notable increase in stakeholders awareness of their rights and remedies have placed the conduct of directors under far greater scrutiny and by a far larger stakeholder base,” says Seegers. The marked increase in the regulatory burden on companies and their directors, as well as the additional time constraints on non-executive directors have added to their challenges.”
Seegers says that the demands on non-executive directors are significantly greater than they used to be in the past and there are increasing concerns around risk and personal liability, particularly in the advent of the new Companies Act of 2008. “For the first time, we look at the risk landscape facing non-executive directors. We are moving into a different phase for non-executive directors, compounded by the technology revolution which allows information to be shared quicker and easier. We look at the Nestle case study to illustrate the point.”
TBoards nowadays have complex businesses to oversee, exacerbated by increasing regulation and severe personal liability implications for directors. The new Companies Act of 2008 has changed the way in which South African companies will be managed and administered into the future. Directors and officers who breach the law, or who breach their fiduciary responsibilities to the companies they represent are personally liable for the losses they cause. This personal liability can be unlimited.
“As the role and responsibilities of the non-executive director widens, the decision to embark on a directorship must be made with a thorough understanding of the challenges and risks facing a director,” says Seegers.