RemCom - Newsletter rc nl 1511

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Implications of King III …

Likely increases in the fees of non-executive directors

Synopsis:

We conjecture that increased time commitments will translate within a year into higher fee tariffs for non-executive directors for their 'services as directors’ , and explain how tariffs in the new required format should be set out.

 

2011 survey results

Our most recent survey of the fee tariffs of non-executive directors fees reveals on average only modest increases in the fees in line with the inflation rate.

 

What differentiates our survey from others is that it also tracks the time spent by non-executive directors in different roles whilst serving – thus for main board duties, for audit committee membership, for remuneration committee membership, etc. This analysis in June, 2011, also revealed fairly inconsequential changes in comparison to 2010.

 

Our conclusions in relation to this, however, are that there is undoubtedly a lead and lag situation in play here – where compliance with King III has been suspended effectively and only kicks in for financial years commencing after 1st March, 2011.

 

Projections for 2012 and 2013

What is being anticipated is that one additional meeting per annum (at least) will be needed by each of the main standing committees (audit and risk and remuneration), and sustainability work may need to be rationalized under the wing of a new standing committee. The point is that these additional attendances, although they will already have commenced, will only show up in the 2012 survey. Furthermore, boards are hardly likely to ask for more fees until such time as they have ‘delivered’ to shareholders – so after the 2012 financial year-end.

 

If we are right about this, then it is the survey figures for 2013 which will reflect the true scale effect of the new corporate governance standards.

 

Summary of survey results

The survey figures as they stand show that the average rate per day of the fully independent non-executive director average R16000 per day – still in line with the going-rate of professional lawyers and accountants in practice, as was the case last year.

 

Developing the new tariffs

Regarding the remuneration of non-executive directors, the King III Report has the following to say in para. 153 of Chapter 2:

"Non-executive director fees, including committee fees, should recognise the responsibilities borne by directors throughout the year and not only during meetings. Fees should comprise a base fee which may vary according to factors including the expertise of each director, as well as an attendance fee per meeting.” (our accents)

 

We show below how our survey-based rate per day can be used to develop a tariff on this new basis.

 

Example

We will show amounts applying to companies with market capitalization between R1 944m. and R10 033m.

 

The committees considered are the Main Board and the Audit and Remuneration committees, and seven directors are involved in this example.

 

The first table shows the calculation of Cost to Company using the survey data applicable:

 

Table - Cost to Company of directors’ fees:

 

 

From this table, the figures are rounded and a Table of Tariffs is created:

 

Table - Tariff of Directors Fees

 

 

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LIBRARY UPDATES:

Updates made to this library in the last month are as follows:-

• For the full versions of our 2011 Non-Executive Directors Fees Survey and our 2011 Top 80 Remuneration Policy Survey, access Section 6 of our RemCom Subscription Library.

Importantly, the Top 80 Survey also addresses a number of ‘disclosure’ issues which have arisen since the implementation of King III - which should be of interest to subscribers.

 

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The RemCom Subscription Library is a publication for those appointed to, or responsible for advising, remuneration or nomination committees of the board. It contains over 500 pages of write-ups on best practice in remuneration policy, as well as an abstract, updated quarterly, of the disclosed information on directors’ remuneration of JSE-listed companies. For more information, go to www.pecs.co.za and select Remcom under Subscription Library on the right-hand panel of the home page.

We consult in this field. Contact Deon Thomson or Don Wood on (011) 442-4334

 

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