NON-EXECUTIVE DIRECTORS’ FEES GUIDE...Non-executive directors make an important contribution to...

NON-EXECUTIVE DIRECTORS’ FEES GUIDE

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3RD EDITION

© This guide has been compiled based on a survey by P-E Corporate Services (SA) (Pty) Ltd. on behalf of the Institute of Directors in Southern Africa (IoDSA), which holds the copyright.

FOREWORD

Non-executive directors make an important contribution to the success of an enterprise in the modern world. Being a non-

executive director has become a profession in its own right, partly driven by the unique challenges that they face.

Non-executive directors are responsible for making critical strategic decisions and for overseeing the management of

a company without the benefit of observing the business full-time. This requires particular skills, knowledge, experience

and business judgement, for which they need to be fairly remunerated.

However, determining fair remuneration is complicated due to the fact that non-executive directors’ contributions are

made in a number of ways, which require varying time commitments.

For this reason, the Institute of Directors in Southern Africa has commissioned remuneration specialists to survey the fees

of non-executive directors as disclosed by companies listed on the Johannesburg Stock Exchange.

The result of this research is a unique guide that enables companies to decide non-executive directors’ fees. It enables

companies to arrive at a benchmark fee per individual director, using the average hourly rates specified for serving on the

board, as well as the audit, remuneration and other committees.

The first two editions of this publication were well received by the market. In this third edition, we have changed the way the

information is presented in order to make it easier to use.

We hope that this guide will play its part in further establishing the vital role of non-executive directors by ensuring that they

are appropriately rewarded for their time and expertise devoted to an onerous and important task.

Parmi Natesan

Senior Governance Specialist

Institute of Directors in Southern Africa

August 2014

© This guide has been compiled based on a survey by P-E Corporate Services (SA) (Pty) Ltd. on behalf of the Institute of Directors in Southern Africa (IoDSA), which holds the copyright. © This guide has been compiled based on a survey by P-E Corporate Services (SA) (Pty) Ltd. on behalf of the Institute of Directors in Southern Africa (IoDSA), which holds the copyright.

FOREWORD

Non-executive directors make an important contribution to the success of an enterprise in the modern world. Being a non-

executive director has become a profession in its own right, partly driven by the unique challenges that they face.

Non-executive directors are responsible for making critical strategic decisions and for overseeing the management of

a company without the benefit of observing the business full-time. This requires particular skills, knowledge, experience

and business judgement, for which they need to be fairly remunerated.

However, determining fair remuneration is complicated due to the fact that non-executive directors’ contributions are

made in a number of ways, which require varying time commitments.

For this reason, the Institute of Directors in Southern Africa has commissioned remuneration specialists to survey the fees

of non-executive directors as disclosed by companies listed on the Johannesburg Stock Exchange.

The result of this research is a unique guide that enables companies to decide non-executive directors’ fees. It enables

companies to arrive at a benchmark fee per individual director, using the average hourly rates specified for serving on the

board, as well as the audit, remuneration and other committees.

The first two editions of this publication were well received by the market. In this third edition, we have changed the way the

information is presented in order to make it easier to use.

We hope that this guide will play its part in further establishing the vital role of non-executive directors by ensuring that they

are appropriately rewarded for their time and expertise devoted to an onerous and important task.

Parmi Natesan

Senior Governance Specialist

Institute of Directors in Southern Africa

August 2014

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

1.1. Intended use of this guide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

1.2. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

1.3. Methodology employed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

1.3.1. Information obtained . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

1.3.2. Categorisation of companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

1.3.3. Computation of results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

1.4. How to use this guide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

2. Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

2.1. Fee tariff results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

2.1.1. Summary table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

2.1.2. Number of meetings per annum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

2.1.3. Average annual fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

2.2. Detailed fees per level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

2.2.1. Level 1: Market capitalisation between R3m and R159m . . . . . . . . . .5

2.2.2. Level 2: Market capitalisation between R160m and R747m . . . . . . . .6

2.2.3. Level 3: Market capitalisation between R758m and R2713m . . . . . . . 7

2.2.4. Level 4: Market capitalisation between R2 835m and R12 499m . . . .8

2.2.5. Level 5: Market capitalisation between R12 948m and R27 0904m. .9

2.3. Some conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

Annexure 1: How to compile a tariff of fees . . . . . . . . . . . . . . . . . . . . . . . . . 11

Annexure 2: Listed companies participating in the special survey . . . . . 12

TABLE OF CONTENTS


1

1. Introduction

1.1. Intended use of this guide

The purpose of this guide is to assist Boards and specifically Remuneration Committees with detailed benchmarking data relating to their non-executive directors, including:

• How many independent non-executive directors on average are serving on company boards in each size category, as defined in 1.3.2. • How much on average is paid to each independent non-executive director per year in each size category. • How many meetings are held, on average, per year in each size category for board and board committee activities.• How much time is spent per meeting per independent non-executive director on preparation, attendance and follow up activities.• How much on average is paid to each chairman/independent non-executive director per meeting, per hour and per day.

1.2. Definitions

The following definitions were applied:

Independent non-executive director (INED): A director serving on the main board of the company who does not represent a major shareholder or stakeholder, is not a major shareholder and did not serve as the chief executive officer during the two years prior to the year of the survey.

Audit committee: Includes the Audit and Risk Committee and committees with substantially the same function.

Remuneration Committee: Includes the Remuneration and Nominations Committee, the HR Committee or committees with substantially the same function.

Other Committee: Includes all other board committees.

1.3. Methodology employed

1.3.1. Information obtained

The database used for this survey was compiled from the publicly disclosed fee tariffs of 186 companies listed on the Johannesburg Stock Exchange (JSE) in respect of their most recent financial year-ends up to 31 December 2012. The information presented in the tables under section 2.1 was derived from this data.

In addition, a special survey was conducted in which certain companies were invited to complete a questionnaire estimating the time given by independent non-executive directors (split by chairman and member) to:

• Preparing for meetings.• Attending meetings.• Following up on matters arising from meetings attended.

Estimates of time spent on both main board and board committee activities were provided.

These estimates were supplied by 32 JSE-listed companies, as itemised in Annexure 2 and were applied to the disclosed tariffs of the 186 JSE-listed companies to obtain indicative fee rates per hour, per day and per meeting (see Section 2.2).

The information captured in this guide relates to INED’s as defined above.


21

1. Introduction

1.1. Intended use of this guide

The purpose of this guide is to assist Boards and specifically Remuneration Committees with detailed benchmarking data relating to their non-executive directors, including:

• How many independent non-executive directors on average are serving on company boards in each size category, as defined in 1.3.2. • How much on average is paid to each independent non-executive director per year in each size category. • How many meetings are held, on average, per year in each size category for board and board committee activities.• How much time is spent per meeting per independent non-executive director on preparation, attendance and follow up activities.• How much on average is paid to each chairman/independent non-executive director per meeting, per hour and per day.

1.2. Definitions

The following definitions were applied:

Independent non-executive director (INED): A director serving on the main board of the company who does not represent a major shareholder or stakeholder, is not a major shareholder and did not serve as the chief executive officer during the two years prior to the year of the survey.

Audit committee: Includes the Audit and Risk Committee and committees with substantially the same function.

Remuneration Committee: Includes the Remuneration and Nominations Committee, the HR Committee or committees with substantially the same function.

Other Committee: Includes all other board committees.

1.3. Methodology employed

1.3.1. Information obtained

The database used for this survey was compiled from the publicly disclosed fee tariffs of 186 companies listed on the Johannesburg Stock Exchange (JSE) in respect of their most recent financial year-ends up to 31 December 2012. The information presented in the tables under section 2.1 was derived from this data.

In addition, a special survey was conducted in which certain companies were invited to complete a questionnaire estimating the time given by independent non-executive directors (split by chairman and member) to:

• Preparing for meetings.• Attending meetings.• Following up on matters arising from meetings attended.

Estimates of time spent on both main board and board committee activities were provided.

These estimates were supplied by 32 JSE-listed companies, as itemised in Annexure 2 and were applied to the disclosed tariffs of the 186 JSE-listed companies to obtain indicative fee rates per hour, per day and per meeting (see Section 2.2).

The information captured in this guide relates to INED’s as defined above.

1.3.2. Categorisation of companies

The companies were divided into five size categories based on market capitalisation as at 31st December 2012. These categories were defined as follows:

1.3.3. Computation of results

The tables in section 2.1 were compiled from the publicly disclosed fee tariffs. Only the fees of INED’s who had served in the preceding financial year for the full year were taken into account for this purpose.

The tables in 2.2 were compiled by applying the time estimates that were established by the special survey to the disclosed tariffs.

1.4. How to use this guide

The following notes are important in gaining a full understanding of the survey results and interpreting the statistics:

• Inflationary adjustment: The statistics presented reflect the level of remuneration for companies with various financial year ends up to 31st December 2012, all of which have been escalated or “aged” to the end of December 2013, at an annual rate of 7.00 percent (0.58 percent per month). For the purposes of comparison, it is recommended that a similar monthly factor be applied to the figures presented in this guide for the further period up to the date on which the comparison is being made.

• Chairman’s fees: In the case of chairmen of main boards, the fees in many cases inevitably include some element of remuneration for representational duties and/ or ad hoc duties outside the scope of the routine activities of the board. Therefore in addition to including the average chairmen’s fees in tables under section 2.2, we have also included a note showing the range of annual chairmen’s fees for each size category.

• Variation in the rates between committees: It is unlikely that the fee rates applying to “other” committees on the tables are statistically reliable as the nature of these committees and the scope of their mandates differ substantially from case to case; but the rates applying to remuneration committee meetings may serve as a general time-based guideline.

• Application to unlisted entities: The average rates per day computed in this survey may also be used as a guideline for unlisted entities (such as, private companies, government entities and non-profit organisations) since the role of INED within these organisations may be equally onerous. Differential factors of up to 33 percent below or above the survey figures may be applied, depending on an evaluation of the particular responsibilities that apply.

• Tariff of fees: To enable companies to compute an aggregate amount of directors’ fees, for presentation to shareholders for adoption in terms of section 66 of the Companies Act, a worksheet: “How to compile a tariff of fees” has been included in Annexure 1.

LevelMarket Cap. (Rm.)

Minimum Maximum

L1 3 159

L2 160 747

L3 758 2 713

L4 2 835 12 499

L5 12 948 270 904


3

2. Results

2.1. Fee tariff results

The following tables show the results derived/ computed from the publicly disclosed fee tariffs of 186 JSE-listed companies:

2.1.1. Summary table

Size Category Number of companies

Total INED’s Average INED’s per company

Meetings per company per

annum

Fees per INED per annum (R)

Fees per INED per meeting

(R)

L1 29 64 2.2 10.8 188 044 17 411

L2 38 116 3.1 11.2 306 615 27 376

L3 39 133 3.4 13.4 376 346 28 085

L4 37 181 4.9 14.9 477 108 32 021

L5 43 280 6.5 16.6 604 252 36 301

Total 186 774

Average fees per meeting - quartiles

R 1

00

0’s

50

45

40

35

30

25

20

15

10

5

L1 L2 L3 L4 L5

Lower (25th) 12.7 15.0 20.5 22.2 27.4

Median (50th) 15.4 22.3 28.0 26.0 31.1

Upper (75th) 20.7 30.8 33.1 37.0 46.4


43

2. Results

2.1. Fee tariff results

The following tables show the results derived/ computed from the publicly disclosed fee tariffs of 186 JSE-listed companies:

2.1.1. Summary table

Size Category Number of companies

Total INED’s Average INED’s per company

Meetings per company per

annum

Fees per INED per annum (R)

Fees per INED per meeting

(R)

L1 29 64 2.2 10.8 188 044 17 411

L2 38 116 3.1 11.2 306 615 27 376

L3 39 133 3.4 13.4 376 346 28 085

L4 37 181 4.9 14.9 477 108 32 021

L5 43 280 6.5 16.6 604 252 36 301

Total 186 774

Average fees per meeting - quartiles

R 1

00

0’s

50

45

40

35

30

25

20

15

10

5

L1 L2 L3 L4 L5

Lower (25th) 12.7 15.0 20.5 22.2 27.4

Median (50th) 15.4 22.3 28.0 26.0 31.1

Upper (75th) 20.7 30.8 33.1 37.0 46.4

2.1.2. Number of meetings per annum

Average number of meeting per annum

Board Audit Committee Remuneration Committee Other Committee

L1 5.0 3.8 2.0 3.0

L2 5.2 3.4 2.3 2.5

L3 4.9 3.6 3.0 3.1

L4 5.6 4.0 3.4 2.8

L5 5.4 4.6 3.9 3.4

2.1.3. Average annual fees (in R’000s)

L1 L2 L3 L4 L5

Board Chairman 244 315 637 927 1 329

Board Member 141 193 232 261 298

Audit Committee Chairman 70 115 133 184 264

Audit Committee Member 24 54 70 99 132

Remuneration Committee Chairman 47 81 74 111 168

Remuneration Committee Member 12 41 40 65 97

Other Committee Chairman 56 77 69 98 138

Other Committee Member 12 19 35 52 78

2.2. Detailed fees per level

The activity-based time estimates provided to us in our special survey were applied to the disclosed fee tariffs of all JSE-listed companies, as shown in Section 2.1, to derive the following estimated indicative fee rates per meeting, per hour and per day in each of the five categories:


5

2.2.1. Level 1: Market capitalisation between R3m and R159m

Sample size: Tariff: Companies: 29 INED’s: 64 Special Survey: Companies: 4

Audit Committee activities

CapacityAverage

meetings per annum

Ave. est. time per meeting per INED (hours) Ave. fees per INED (R)

Preparing Attending Follow up Per meeting Per hour Per day

Chairman3.8

2.3 2.0 3.7 18 476 2 310 18 480

Member 2.0 2.0 1.0 6 357 1 271 10 168

Remuneration Committee activities

CapacityAverage

meetings per annum



Chairman2.0

1.7 1.0 1.3 23 416 5 854 46 832

Member 1.0 1.0 0.3 5 765 2 471 19 768

Main board activities

CapacityAverage

meetings per annum



Chairman5.0

4.3 2.0 3.0 48 495 5 198 41 584

Member 2.0 2.0 1.0 27 926 5 585 44 680

Note: The chairman’s annual fee for the sample was in the range from R 67 700 to R 554 260

Other Committee activities (averaged)

CapacityAverage

meetings per annum



Chairman3.0

0.6 0.6 0.4 n/d n/d n/d

Member 0.4 0.6 0.2 n/d n/d n/d

‘n/d - not disclosed as the sample sizes are statistically unreliable. The rate per day is based on the hourly rate for an eight-hour day.Note also that the disclosed fees used above include both annual retainers and attendance fees per meeting, as applicable.


65




CapacityAverage

meetings per annum



Chairman3.8

2.3 2.0 3.7 18 476 2 310 18 480

Member 2.0 2.0 1.0 6 357 1 271 10 168


CapacityAverage

meetings per annum



Chairman2.0

1.7 1.0 1.3 23 416 5 854 46 832

Member 1.0 1.0 0.3 5 765 2 471 19 768


CapacityAverage

meetings per annum



Chairman5.0

4.3 2.0 3.0 48 495 5 198 41 584

Member 2.0 2.0 1.0 27 926 5 585 44 680



CapacityAverage

meetings per annum



Chairman3.0

0.6 0.6 0.4 n/d n/d n/d






CapacityAverage

meetings per annum



Chairman3.4

5.5 3.5 3.5 34 118 2 729 21 832

Member 4.5 3.5 3.0 15 944 1 449 11 592


CapacityAverage

meetings per annum



Chairman2.3

3.5 3.5 1.5 35 342 4 158 33 264

Member 3.0 3.5 1.5 17 695 2 212 17 696


CapacityAverage

meetings per annum



Chairman5.2

6.5 3.5 2.0 60 998 5 083 40 664

Member 4.5 3.5 3.0 37 378 3 398 27 184



CapacityAverage

meetings per annum



Chairman2.5

0.7 1.3 0.3 n/d n/d n/d




7


CapacityAverage

meetings per annum



Chairman3.6

7.8 4.8 2.8 36 370 2 385 19 080

Member 3.0 4.8 0.6 19 055 2 289 18 312


CapacityAverage

meetings per annum



Chairman3.0

3.1 3.3 1.5 24 885 3 160 25 280

Member 2.4 3.3 0.6 13 309 2 147 17 176


CapacityAverage

meetings per annum



Chairman4.9

5.1 4.8 4.3 130 789 9 263 74 104

Member 3.8 4.8 1.1 47 638 4 975 39 800

Note: The chairman’s annual fee for the sample was in the range from R 236 470 to R 1 985 685


CapacityAverage

meetings per annum



Chairman3.1

1.1 1.0 0.3 n/d n/d n/d






87


CapacityAverage

meetings per annum



Chairman3.6

7.8 4.8 2.8 36 370 2 385 19 080

Member 3.0 4.8 0.6 19 055 2 289 18 312


CapacityAverage

meetings per annum



Chairman3.0

3.1 3.3 1.5 24 885 3 160 25 280

Member 2.4 3.3 0.6 13 309 2 147 17 176


CapacityAverage

meetings per annum



Chairman4.9

5.1 4.8 4.3 130 789 9 263 74 104

Member 3.8 4.8 1.1 47 638 4 975 39 800



CapacityAverage

meetings per annum



Chairman3.1

1.1 1.0 0.3 n/d n/d n/d






CapacityAverage

meetings per annum



Chairman4.0

4.4 3.9 3.6 46 105 3 924 31 392

Member 2.9 3.9 1.7 24 750 2 946 23 568


CapacityAverage

meetings per annum



Chairman3.4

3.0 3.1 2.3 32 507 3 870 30 960

Member 2.0 3.1 1.4 19 056 2 932 23 456


CapacityAverage

meetings per annum



Chairman5.6

5.2 3.9 3.3 164 821 13 400 107 200

Member 3.5 3.9 1.7 46 430 5 159 41 272



CapacityAverage

meetings per annum



Chairman2.8

1.1 0.9 0.8 n/d n/d n/d



2.2.4. Level 4: Market capitalisation between R2 835m and R12 499m



9


CapacityAverage

meetings per annum



Chairman4.6

5.6 4.5 1.5 57 995 5 010 40 080

Member 4.3 4.5 0.9 28 914 3 007 24 056


CapacityAverage

meetings per annum



Chairman3.9

4.0 2.7 1.3 43 086 5 438 43 504

Member 2.6 2.7 0.9 24 897 4 071 32 568


CapacityAverage

meetings per annum



Chairman5.4

7.5 4.5 3.2 245 289 16 190 129 520

Member 4.3 4.5 0.9 54 945 5 714 45 712



CapacityAverage

meetings per annum



Chairman3.4

1.2 0.9 0.4 n/d n/d n/d






109


CapacityAverage

meetings per annum



Chairman4.6

5.6 4.5 1.5 57 995 5 010 40 080

Member 4.3 4.5 0.9 28 914 3 007 24 056


CapacityAverage

meetings per annum



Chairman3.9

4.0 2.7 1.3 43 086 5 438 43 504

Member 2.6 2.7 0.9 24 897 4 071 32 568


CapacityAverage

meetings per annum



Chairman5.4

7.5 4.5 3.2 245 289 16 190 129 520

Member 4.3 4.5 0.9 54 945 5 714 45 712



CapacityAverage

meetings per annum



Chairman3.4

1.2 0.9 0.4 n/d n/d n/d





2.3. Some conclusions

• Relevance of size: Whilst there is clearly some correlation between the fees paid and company size, it is noteworthy that there is a considerable degree of overlap. This is indicative of the fact that smaller companies are often prepared to pay high rates to obtain highly influential INED’s.

• Minimum fee rates: It is hard to identify a minimum fee rate per day. Yet, as a rule of thumb, it is clear that a rate of R15 000 per day (not coincidentally equal to the professional fee rates of many professional accountants and lawyers) appears to influence the tariffs within Level 1, 2 and 3 companies; whilst a rate of approximately R20 000 appears to prevail within Level 4 and 5 companies.

• Fee structure: The most common fee tariff applying to main-board membership provides for an annual retainer fee supplemented by an attendance fee. In the case of standing committees, approximately half of companies provide for attendance fees only whilst the remainder offer either an annual fixed fee, or an annual fee and an attendance fee.


11

Annexure 1: How to compile a tariff of fees

The following worksheet illustrates how a tariff may be compiled using the rates per hour which are established in this guide:

Working Schedule

Hourly rate

Estimated time per meeting

(preparation, attending, follow up)

No. of meetings

per annum

No. of INED Cost to company

Board

Chairman

Members

Audit Committee

Chairman

Members

Remuneration Committee

Chairman

Members

Other Committee

Chairman

Members

Other Committee

Chairman

Members

Other Committee

Chairman

Members

* Based on policy that all meetings are attended Total

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

=

=

=

=

=

=

x x x =


1211

Annexure 1: How to compile a tariff of fees

The following worksheet illustrates how a tariff may be compiled using the rates per hour which are established in this guide:

Working Schedule

Hourly rate

Estimated time per meeting

(preparation, attending, follow up)

No. of meetings

per annum

No. of INED Cost to company

Board

Chairman

Members

Audit Committee

Chairman

Members

Remuneration Committee

Chairman

Members

Other Committee

Chairman

Members

Other Committee

Chairman

Members

Other Committee

Chairman

Members

* Based on policy that all meetings are attended Total

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

=

=

=

=

=

=

x x x =

Annexure 2: Listed companies participating in the special survey

Our thanks go to the following JSE-listed companies who responded to our request and provided us with further detail surrounding the activities of their INED’s:

Company Size Category

Accentuate Ltd L1

AdaptIT Holdings Ltd L1

Huge Group Ltd L1

Spanjaard Limited L1

Crookes Brothers Ltd L2

Sekunjalo Investments Ltd L2

Advtech Ltd L3

Allied Electronics Corporation Ltd L3

Bell Equipment Ltd L3

Combined Motor Holdings Ltd L3

Eqstra Holdings Ltd L3

Astral Foods Ltd L4

Clover Industries L4

Hosken Consolidated Investments Ltd L4

JD Group Ltd L4

Northam Platinum Ltd L4

Royal Bafokeng Platinum Ltd L4

Sun International Limited L4

Super Group L4

Aspen Pharmacare Holdings Ltd L5

Discovery Ltd L5

Distell Group Ltd L5

Foschini Group L5

Life Healthcare L5

MMI Holdings Limited L5

Mr Price Group L5

Nedbank Limited L5

Pick n Pay Stores Ltd L5

Standard Bank Group Ltd L5

Steinhoff International L5

Vodacom Group Ltd L5

Woolworths Holdings L5

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