NZSA Policy No 1 – Director Fees
Application: This policy applies to all NZX listed companies.
Purpose: NZSA maintains a range of policies to moderate the behaviour of all participants in the NZX listed company sector. These policies should be read in the context of the NZSA Policy Framework Statement.
1.0 Director Fees
1.1 Non-executive director fee pools must be clearly and comprehensively disclosed in companies’ remuneration reports. In seeking an increase in the fee pool, companies should state the percentage increase sought as well as the amount in dollars and should outline the distribution of pool funds, including the level of proposed fees for each director (or position in the case of committee chairs yet to be appointed) for the next financial year.
1.2 Shareholders expect non-executive director fee pools to include all amounts paid to directors including all superannuation contributions.
1.3 The requested director’s fee increase must be demonstrated to be reasonable. Where consultant reports are used to justify fee increases, the NZSA believes the full report should be made available to shareholders as part of normal disclosure. In addition, further explanation must be given to shareholders if the existing fee pool has not been fully utilised in the prior year.
1.4 Where the company constitution allows a pro-rata to increase in the director’s fee pool for any appointment made between Annual General Meetings, companies should refrain from seeking fee increases in advance based on the possibility of an increase in board numbers during the year.
1.5 The proposed fee pool, and the fees paid to individual directors, should be comparable with the company’s peers. The peer group companies should be of a similar scale. In addition, companies should assess whether they have an optimal board size. On occasion it may be more appropriate to reduce the number of directors rather than seek an increase in fees.
1.6 Companies should not award options and accrue retirement benefits for non-executive directors. Special exertion benefits, additional to director fees, are not generally acceptable and should not be paid without shareholder approval. Companies should conform to NZX guidelines.
1.7 The directors must consider the overall performance of the company prior to approaching shareholders for a fee increase.
1.8 Shareholders expect that companies with an executive Chair (a dual role we do not favour) should have a significantly lower total fee pool than their peers.
2.1 Companies listed on the NZX are required to obtain shareholder approval by ordinary resolution for increases in their total non-executive director fee pools.
2.2 Due to an inherent and unavoidable conflict of interest, directors most often refrain from making a recommendation to shareholders on how to vote on these resolutions. Directors often seek reports from outside consultants regarding appropriate fee levels. The NZSA has little faith in these recommendations due the inherent conflict caused by the board being the very group that appoints and pays the consultant and the dramatic difference in recommendations apparent when two consultants have reported on the same company.
2.3 Given that there is no formal independent oversight of proposed increases in fee pools, it is important that shareholders exercise their judgement on these resolutions. Although the amounts involved may be small in comparison to the overall level of expenses incurred by the company, the size of director fee pools can be indicative of the company’s overall remuneration policy.
The definition of Independence is given in the NZX Listing rules under 2.13.3 (f).
NZSA maintains other related policies regarding audit as shown below:
Policy 2 Auditor Rotation
Policy 3 Auditor Tenure
This document was approved by the NZSA Board: July 2018
This document is effective from: July 2018
The next planned review date is: July 2021