The hourly rates for non-executive directors serving on boards of various sized companies are similar, but the hours required to effectively perform duties differ significantly, which impacts the total quantum. This is according to the fourth annual Non-Executive Directors’ Fees Guide launched by the Institute of Directors in Southern Africa (IoDSA) in conjunction with EY.
The Guide is designed to give companies a guidance for setting non-executive directors’ fees, the time commitment, and number of meetings appropriate to their specific needs.
The Guide also indicates the average size of the various board committees. Other important and useful information includes the factors driving fee increases for non-executive directors, supplementary fees, expenses and/or benefits provided for them, and how companies structure fees for their board members.
“Non-executive directors have a critical governance role to play, and they bear the same level of risk as executive directors in terms of the Companies Act. The conversation around the fees should therefore never overshadow the focus on the bigger picture – appointments resulting in a balanced and competent board,” says Parmi Natesan, Executive: Centre for Corporate Governance at the IoDSA.
At the most general level, she notes, non-executive directors are chosen to provide objective criticism and advice, but they are also valued for the business experience they bring to the board – experience that could help make the company’s success more likely. Increasingly, too, directors with specific skills are sought to complement the skills already offered by other directors, both executive and non-executive.
“Choosing, managing and rewarding non-executive directors with the right skills is essential to creating boards that have the right mix of skills to make a difference,” Natesan says. “To attract the right individuals, therefore, companies need to be sure that they are paying competitive rates – and receiving good value from their non-executive board members.”
Natesan points out that non-executive directors’ fees are not intended simply to cover their attendance at meetings, but also the time commitments for preparation and follow up as well as to stay up to date with developments within the company.
“The Guide will help directors and potential directors to benchmark these time commitments. It will naturally also help Boards to propose realistic and competitive fees for shareholder approval,” says Ray Harraway, director at EY and Chairman of the IoDSA’s remuneration committee forum.
“A company’s directors are the ultimate custodians of the shareholders’ investment and their important role is now well regulated. In parallel, all directors are vulnerable to risk and liability– companies need to reward them appropriately for the increased time and effort the role demands. Benchmarking is an essential tool in doing so, and thus in creating an effective board.”