Some directors got bumper pay rises in recent years and others got nothing - but the average still vastly outstripped rises for other workers.
A study by Institutional Shareholder Services found the average fee for a non-executive director rose nearly 25 per cent from $49,253 in 2004 to $61,416 last year. Telecom and Fletcher Building chairman Roderick Deane was the highest-paid director last year, at $665,500. Wayne Boyd was second with $392,961 for his role on the Telecom board and his chairmanships of Auckland International Airport and Freightways. Third was Keith Smith with $345,000 for his seat on the PGG Wrightson board and chairing Skellerup, Warehouse Group and Tourism Holdings.
The rate of pay increase for directors over the period was more than three times that of inflation - based on a consumer price index rise of 6.9 per cent - and four times the 5.9 per cent growth in wages as measured by the Labour Cost Index.
But ISS lead analyst Martin Lawrence said there was a two-tier market for director pay. "There are some big companies where director fees appear to be tracking the increases in Australia, albeit at a slower rate, and then there is a large group of companies, some big and some small, where director fees aren't increasing at a rapid rate," Lawrence said.
Of 177 directors who, for the entire period, sat on a board of one of the top 48 listed New Zealand companies surveyed, 20.3 per cent did not get a pay rise, and 12.4 per cent got a raise of at least 50 per cent, the study said. "It is unheard of in most markets to have directors whose fees have not moved for three years," Lawrence said.
Australia and the UK had shown a substantial growth in fees after corporate collapses in 2001, with non-executive director fees for the top 100 listed Australian companies rising on average 81 per cent between 2001 and 2006. Some New Zealand firms were following the overseas trend but not as rapidly. "It seems to be explained by some New Zealand-specific facts, some of which are probably cultural."
Another was that New Zealand did not have the company collapses in 2001 and 2002 which increased attention to corporate governance. International comparison on pay levels was more relevant for companies with overseas operations and markets, although Lawrence said he was startled by generally how much lower director fees were in New Zealand.
The best paid directorships were relatively concentrated. Last year 28 directors on 35 boardroom seats each received at least $100,000 a year from a company. Five directors held two of these seats and one had three.
Many larger New Zealand firms did not pay the same as similar-sized operations in Australia. "That seems to suggest there's some cultural factor that says because Australian directors are paid a lot doesn't mean that we will be," Lawrence said.
Some companies towards the bottom end of the pay rise scale had long established boards with powerful strategic shareholders, he said. "In that kind of scenario director and executive pay doesn't tend to increase very fast."
The 22 directors whose pay rose by at least half between 2004 and 2006 were associated with seven companies - two of which had profit grow at a faster rate than fees and one of which had a drop in profit. Fees in New Zealand had remained relatively constant as a proportion of operating cash flow and net profit, although pay did not seem to be necessarily related to company performance, Lawrence said.
"You could argue that directors fees shouldn't be directly related to performance, that they should be sufficiently divorced from the swings and roundabouts of the company so that they're not making decisions with an eye on what their fee will be this year," he said. "You want them to be saying, 'Well this might hurt the company this year but in three years it'll be worth it for everybody involved'."
Des Hunt from the New Zealand Shareholders' Association said there had to be a relationship between directors fees and the average salary within the company and living standards. "Living in Sydney is a lot more expensive than, say, living in Auckland," Hunt said. Comparing companies was not a good guide, he said. "It's where a company is trying to head, the sort of skills required ... the performance of the company would have a bearing on how these people should be rewarded."
Institute of Directors chief executive Nicki Crauford was happy to have performance-based pay for directors, although it was hard to make it work. "You're wanting directors to consider the business over time, in many cases a substantial period of time, because you want them to grow the business in the medium term," Crauford said. "So short term financial targets can be misleading."
New Zealand directors were very poorly paid which was a concern. "If we're going to want quality directors to run quality businesses then we have to pay them accordingly."
Top paid directors 2006
- Roderick Deane: $665,500 - chairman Telecom, Fletcher Building.
- Wayne Boyd: $392,961 - chairman Auckland International Airport, Freightways; director Telecom.
- Keith Smith: $345,000 - chairman Skellerup Holdings, Warehouse Group, Tourism Holdings; director PGG Wrightson.
- Rod McGeoch: $309,889 - chairman SkyCity Entertainment; director Telecom.
- Gary Paykel: $297,469 - chairman Fisher & Paykel Appliances, Fisher & Paykel Healthcare.
Changes 2004-2006
- 24.7 per cent rise in average director pay to $61,416.
- That's four times faster than the growth in wages.
- And three times faster than inflation.
- 12.4 per cent of directors given more than a 50 per cent rise.
- 20.3 per cent of directors saw no increase.
