Non-exec directors' pay up 9.8%: Hay Group

[SINGAPORE] Non-executive directors (NEDs) in Singapore-listed companies enjoyed a 9.8 per cent increase in fees compared to a year ago, with directors in small and medium-sized enterprises (SMEs) enjoying bigger increments compared to those in larger companies.

This upward trend in fees is expected to continue given a shortage of good qualified directors and the increased responsibilities they shoulder, according to Hay Group, the global management consultancy that conducted the study.

The report released yesterday showed the median average director fees - based on the total board costs of the year divided by the actual number of directors on the board - rose to $56,000 for the financial year 2012/2013, compared to $51,000 in the preceding fiscal year.

Fees for directors in large-sized companies with market capitalisation higher than $3 billion remained flat in the past fiscal year at $123,000.

Directors at medium- sized companies ($500 million-$3 billion in market cap) saw their average fees increase to $65,000 in FY12/13, up from $64,000 in the year-ago period, and those in small-sized companies (below $500 million in market cap) rise to $50,000 from $47,000.

The study by the global management consultancy examines 246 listed companies on the Singapore Exchange (SGX), based on data from their latest annual reports as at Nov 29, 2013.

In the rising tide of director fees, not everyone is buoyed though.

Yap Wai Ming, a director at Stamford Law, who serves as corporate secretary at some listed companies, noted that some companies that did not do well last year actually froze director fees.

"Duties have become quite onerous for NEDs, but it is often difficult for fees to creep up to a fair level as directors' fees need to go through the shareholders' vote," said one non-executive director, who declined to be named and sits on the boards of two Singapore-listed companies.

In contrast, executive pay has "gone out of whack" because it does not require shareholders' approval here, the director said, pointing to the latest report by Towers Watson that showed that executive pay packages in Singapore for top staff outstripped those in the rest of Asia, including Japan and Hong Kong.

Many countries like Australia, the US and in Europe require shareholders to have a non-binding say on executive pay - a best- practice norm that Singapore may wish to adopt, the director added.

According to Hay Group, the multi-industry sector led the pay scale for directors with a median average fee of $83,000, followed by the finance ($66,000), construction ($59,000) and property ($59,000) sectors.

Kevin Goh, director of executive rewards at Hay Group Singapore, noted that more stringent regulatory requirements such as the revised Code of Corporate Governance, higher prevalence of risk management committees, more director meetings and a shortage of qualified NEDs have all contributed to the overall fee increase.

Fifty-two companies in the study's sample set up separate risk management committees last year, compared to 36 the year before, with finance and multi-industry sectors mainly accounting for the increase.

In the wake of the regulatory changes requiring at least half the board to be independent if the chairman is not independent, the proportion of companies in the study's sample that meet the requirement has increased from 47 per cent, up from 42 per cent in the year ago period.

"We expect more companies to comply with the requirement as the revised code will take effect in FY2016," Mr Goh said.

Hay Group is expecting NED remuneration to grow 7-10 per cent annually over the next three years.