Article by Andrew Taylor, The Financial Times 18 Aug 2008
Pay rises for non-executive directors slowed again last year while companies expected them to do more to justify their fees, according to a study published today.
The workload was likely to get harder in the wake of the credit crunch as shareholders questioned the performance and pay of directors, said Sean O'Hare, partner at PwC, which conducted the annual review.
The consultancy reported that increases in fees paid to non-executive directors - which initially rose sharply in the wake of boardroom reforms resulting from the Higgs review in the UK and Sarbanes-Oxley in the US to compensate for higher workloads - had levelled off.
Fees rose by 15.6 per cent over the past year compared with 16.7 per cent in 2006-07 and 25 per cent in 2005-06.
Median average annual fees for a non-executive chairman of a FTSE 100 company stood at £313,000 and £65,000 for a nonexecutive director. For a FTSE 250 company the fees were £120,000 and £39,000 respectively.
Actual annual increases would have been smaller since pay for many nonexecutive directors was still reviewed only every third year, PwC said.
But this was changing, with more emphasis being placed on regular consideration of pay levels and the performance of nonexecutives, Mr O'Hare said. "The rate of fee increase is levelling off as non-executive directors and the boards that employ them are working harder to balance fees with responsibilities that come with the role.
"As fee increases become more moderate we can expect more focus by shareholders on the disclosure of non-executive directors' effectiveness rather than just what they earn."
The average time devoted by a non-executive director to company business has risen to 21 days from 15 days in 2003 as formal reviews of corporate governance and board effectiveness have become common.
Copyright: The Financial Times Limited 2008
