DIRECTOR REMUNERATION

The AICD believes recent calls for increases in directors’ fees are inevitable, due to the growing demands of the role in an environment of greater scrutiny and personal liability for directors. Recent introduction of rigorous legislation has increased the time and compliance focus demanded of directors.

As in any market driven equation the laws of supply and demand determine the price required to secure quality directors, who have the experience and skills necessary for the growing role.

A further important point is that shareholders ultimately have to approve director remuneration. Increases to directors’ pay need to be agreed upon by shareholders. If there are objections to rises then there are mechanisms in the AGM where those concerns can be raised.

Good practice in components of director remuneration

The AICD believes that good practice in the structure of director remuneration adheres to the following general guidelines:

Importance of evaluation in the remuneration process

As part of the remuneration process the AICD believes in regular, rigorous evaluation of directors to determine their performance. This evaluation process should be disclosed to shareholders in the Annual Report.

Company wealth and director remuneration

The fortunes of the individual company are also a factor that can influence director fees. Rather than an upturn in company fortunes or results being a contributor to a director demanding higher fees, often a company that is in trouble needs to attract exceptional talent to oversee a turnaround in company performance. The company may need to pay above the odds to attract that talent.