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Saturday, November 1, 2008
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PricewaterhouseCoopers SA has recently launched the first edition of its PwC Non-Executive Directors Best Practice and Fees Report, which looks at a sample of fees paid to non-executive directors and non-executive chairpersons of JSE-listed companies.
Gerald Seegers, PwC Director of Human Resource Services (Tax), says when it comes to remunerating the non-executive chairperson, total fees varied widely and could not be correlated back to either market capitalisation nor price/earnings ratio of the company. The average fee package for this position is R730 000. The UK equivalent would be earning £260 000 (R3,72 million).
In the lower market cap sector (R6,4 billion) the chairperson’s fee drops down dramatically to R316 500. In the bigger caps, the chairperson earns on average R1,72 million and the mega-groups with caps of about R563 billion are paying top rates at R5,98 million.
Looking at what the sectors are paying the chairperson, oil and gas, comes in highest with over R3,5 million in fees, followed by banks, insurance and basic resources. The lowest paid chairpersons are found in the construction and materials sectors where the average is just over R500 000.
As with the chairperson, fees paid to non-executive directors vary widely and again bear no relation to market capitalisation nor price/earnings ratio. The average overall for a non-executive is R215 000. The lower to medium cap stocks pay anywhere in the range from R126 000 to R433 000 but this soars to a R2,59 million package for the giant caps of around R563 billion. The comparative average in the UK is £57 000 (R826 000).
Once again, oil and gas pays the non-execs top rates at over R500 000 closely followed by basic resources and insurance and just below this threshold. Financial services and banks pay around R430 000 and the lowest paid non-executives are found in healthcare at just over R100 000 per annum.
The survey found that most companies review non-executive fees annually and compare them with companies in the same sector, especially financial services.
The debate on whether non-executives should be partly remunerated by way of company shares continues, observes Mr Seegers, and is being considered in the King III report. “Although it is still a fairly common practice in the US, and supporters argue its merits, fewer companies are actually doing so. In some global markets, the trend is to grant non-executives shares as opposed to options.”
He says there is a growing trend in SA to pay per meeting and companies will deduct either an agreed amount or the actual fee if the director fails to attend. “For example, Murray & Roberts, in the 2006 annual report, states there will be a R10 000 deduction per meeting not attended.”
There is also the practice of paying non-executives on an hourly basis and Mr Seegers says the rates are usually in the R2 000 to R3 000 range.
For special committees such as risk management, nominations, corporate governance and so on the highest paid is the sustainability committee where the chairperson average is R210 000 and non-executive average is R90 000. This is followed by the audit committee where averages are R199 000 for chairperson and R82 500 for non-executives.
The PwC report sample covered 77,4% of total JSE market capitalisation, and included 39 of the Top 40 large caps and 60 medium and small cap stocks. In the position of chairperson, 15% of appointments were held by BBBEE candidates and with regard to non-execs, 24% were BBBEE appointees.
The banking sector has the highest average number of non-executives on a board at 14 (with Absa and FirstRand at 16 each). This is followed by telecoms (MTN and Telkom) and oil/gas (Sasol) with an average of 11 non-executives per board.
The PwC report also considers the various board committees on which non-executive directors serve and how the role of non-executive directors is best served, both in SA and internationally.

Copyright © Insurance Times and Investments® Vol:21.10 1st November, 2008
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