There's no substantive research showing better-paid directors deliver better outcomes, so we should pursue more diversity at board tables and effective training
Comment: The words “fair” and “company director” do not really roll off the tongue together. After all, most such directors understand “equity” to be something you buy on the stock exchange.
But the inner unionist hidden deep in the subconscious breaks out when it's time for a fee review. “Relativity” once confined to the union bargaining table downstairs becomes a topic for mahogany row.
Various advisory firms compete to find comparisons that put the board in the best light, stretching credulity and advisory fees alike. A business anthropologist would have a behavioural field trip of a lifetime among the business apologists.
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► Surprise survey: Boards of directors going backwards on diversity
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Actually the outcomes are not as wealth creating for directors as the cosiness of the process may suggest. Directors' fees are not all that high – rich directors largely got rich first from inheritance, investments or options. It’s pretty hard to put together a director portfolio that, for example, would match a chief executive salary. There is an old saying that the wages of sin are death, but the hours are good. For company directors, the wages are better than death, but the hours are also good.
Strategic Pay has over the years produced independent surveys that are useful to observers if not so much to director fee proposals, and they do illustrate important trends. Gender composition of boards and pay gaps are one aspect of this. The most recent survey confirms my intuitive perception that a lot of the progress in board gender composition has been in government, local government and NGO entities where fees are lower than in larger private enterprise roles.
Again an intuitive perception that increasing legal responsibilities on directors and perceived risks have increased workloads and that fees have not kept pace is confirmed by the results of the most recent survey. Directors do seem to worry more about the personal impact of such matters and spend more time reviewing and discussing them, which I guess is at least part of the aim. Whether that produces any substantive gain to stakeholders is another matter, though it has definitely increased amounts paid out by companies to insure directors against such risks.
Good governance of business and other entities with responsibility for assets and people is important to all of us. In my experience there is no shortage of people seeking such roles where they are paid positions. What I have not seen is any substantive research showing that outcomes from governance by directors paid more is better than from those paid less (Note that “better” in this sense is not simply short-term shareholder returns.) That is the really important question. My experience would suggest that there may not be a strong positive statistical relationship.
If we do not think there is such a difference, and if there is an apparent good supply of competent directors available at current pricing, you would not expect the market to produce a big rise in director fees. It would be wasteful if we did.
To my mind we are better to focus on more diversity of presence at board tables and effective training for the role.
All in all I think the Strategic Pay work is interesting as a record of what is happening. It may spur some organisations to recognise that they are paying directors less than others and may be losing talent because of that. But it's hardly “modern slavery” needing legislation under that name. Nor do I think it likely the Directors Union will launch a “fair pay” claim under the new legislation of that name. It’s just not that bad, is it?
