Director Remuneration

Alison Gaines
Gerard Daniels Media Statement

“Audit Committee Fees on the Rise”

For the second year Gerard Daniels Board Consulting has reviewed Non-Executive Director remuneration in Australian listed companies. Alison Gaines, the Global Practice Leader of Board Consulting said that “its findings have created some ‘rules of thumb’ when it comes to determining fees paid to directors of boards”.

The study of Non-Executive Director remuneration, commissioned by Western Australia’ s largest health insurer HBF (HBF Health Funds Inc) in 2005 and 2006, was presented last month to the HBF AGM. 

“Our study analysed all Australian publicly listed companies in 2004 and 2005.  Most of the 2005 data confirmed our 2004 findings” said Ms Gaines, “except where we found changes to Audit Committee Chair and Audit Committee member fees between the years.”  

The Gerard Daniels’ study looked at fees paid to all Non Executive Directors in the lower quartiles, median and upper quartile of Australian listed companies and found on average across 2004 and 2005 data that:

• The non-executive director’s base fee is 10%-11% of the Chief Executive Officer’s fixed remuneration;
• The chairman receives two times the Non-Executive Director’s base fee.
• Directors do not usually receive additional fees for committee roles, except Audit Committee roles.

Ms Gaines said “we were interested to find in the 2005 data that fees for undertaking a role in the Audit Committee were increasing.” 

“In 2005, the Audit Committee Chairman receives 1.4 times the Non-Executive Director base fee in comparison with 1.2 times in 2004.”

“In 2004 it was rare for Audit Committee members to be paid additional committee fees. Our 2005 study finds that 41% of companies paid additional fees for Audit Committee work. An Audit Committee Member now receives 1.2 times the Non-Executive Director base fee.”

“The finding coincides with anecdotal evidence of increasing pressure to align fees for Committees with risk.  It is in line with the view that the Audit Committee, in particular, has a specific duty to ensure their company is compliant with all regulatory requirements.”

“In addition, the move to International Accounting Standards has increased the workload of Audit Committees and it is therefore not surprising to report an increase in fees.  Whether the fee increase is maintained as the new Standards bed down will be of interest in the coming years.”
 
“The spate of high profile corporate collapses in the early 2000s has also played its part.  Litigation and the perception of the risk of litigation, particularly for accounting experts who sit on Audit Committees, has made it more and more difficult to attract qualified and experienced individuals to the Audit Committee. I would expect to see that companies would increase audit fee remuneration to attract directors to the committee role.”

Gerard Daniels is undertaking more detailed research into Audit Committee Remuneration and will be releasing the results early next year.

The Board Consulting division of Gerard Daniels works closely with Australian boards and executives to improve business performance, focussing on:

• Board Performance and Evaluation
• Board Composition
• Non-Executive Director Selection
• Corporate Governance
• Director Remuneration
• Executive and Senior Management Remuneration
• Organisational Development and Performance Systems

All media enquiries to:

Alison Gaines
Global Practice Leader, Board Consulting
Gerard Daniels
Mobile:  +61 414 633 230
Direct telephone:  +61 8 9322 0863
Email:  alisong@gerard-daniels.com