The Board is responsible for assisting management with, and the maintenance of, good business practices. This requires individuals with necessary skills and expertise to make sound business judgments, which leads to the need to remunerate them fairly according to recommended practices.
The Board determines what would be a fair remuneration for its Non-Executive Directors (NEDs), considering:
- the size of the Company;
- the type of industry and complexity the Company operates in;
- the number of meetings expected to be attended; and
- the time commitment and level of experience required from the NED
Fees paid to NEDs vary between sectors and achieving fair and responsible remuneration is not a one size fits all strategy.
The Board needs to attract the right calibre of directors who can steer the business through transformation and, in order to do this, there needs to be a proper remuneration fee structure and/or policy in place. A useful reference point to assist in determining fair remuneration for your NEDs would be benchmarking fees paid to directors by peer companies. The exercise includes, but is not limited to, comparing factors such as:
- Gender and Race Diversity;
- Chairperson Remuneration;
- Executive Director Remuneration;
- Director Age and Board tenure;
- Director Qualifications;
- Board and Committee Composition and Market Capital; and
- BEE Status of the Company with that of its peers.
A Board that has a diverse set of skills, knowledge and expertise is crucial in helping the Company deal with organizational dynamics. This requires a chairperson who has the ability to, inter alia, identify and participate in appointing skilled board members, overseeing a formal succession plan for the board and executive management and recognise the need for an evaluation of the board to identify gaps and address concerns that may exist.
Chairpersons, together with the rest of the board, have had to step in to help management strategies and manage through the recent crisis, resulting in additional ad hoc meetings. The Board needs to evaluate if this calls for a need to align the Company’s KPIs and remuneration fee structures with the reconfigured strategies through the process of benchmarking. The exercise will, amongst other things, help the board gain an independent perspective on fees paid to directors by peer companies and assist in recommending industry accepted fees to shareholders.
Having a competent Board requires the right set skills and expertise from both Non-Executive and Executive directors. This conversely raises the need to compensate directors fairly in accordance to their competencies, qualifications and market standards. A benchmarking exercise can assist the board in determining appropriate fees to recommend to shareholders for the benefit of both the directors and the Company. Acorim can assist in providing your company with a benchmarking report, ensuring that your remuneration fees are fair and comparable to your peers.
