Director compensation rose sharply in past two years

Role involves greater responsibility, liability: Conference Board
|hrreporter.com|Last Updated: 12/13/2011

Compensation for directors of publicly traded Canadian corporations rose significantly between 2008 and 2010, a trend that is expected to continue, according to the Conference Board of Canada.

The average total compensation paid to outside directors for their regular board service is $112,651 per individual — a substantial increase from $84,452 in 2008, found the 2011 Canadian Directors' Compensation and Board Practices based on a survey of 101 publicly traded firms listed on Canadian exchanges. Eighty per cent of firms have adjusted director compensation since 2008.

Directors are expected to increase the time commitment to their duties, assume additional responsibilities for oversight and take on greater personal liability. If workloads and expectations continue to rise, it is almost certain director compensation will also continue to escalate at a rapid rate, said the Conference Board.

"It is expected that governance standards will continue to evolve and that organizations will have new heights to reach. Against even current standards of good governance, boards still have a lot of room for improvement," said Karla Thorpe, director of leadership and human resources research. "As the bar continues to be raised, more dramatic changes in board practices can be expected."

Large companies (firms with more than $2 billion in annual revenue) and medium-sized firms ($150 million to $2 billion in revenue) paid their directors similar amounts, found the survey. Total average compensation in large firms was $128,171; directors of medium-sized firms averaged $124,851. Small firms (under $150 million in revenue) recorded an average of $70,648 in total compensation per director.

Boards are also becoming more actively engaged in the organization, found the Conference Board. Directors are increasingly extending the scope of their roles and responsibilities — requesting more information, analyzing more data, holding more meetings and adding committees and board members. Responding organizations indicated directors spent an average of 128 hours per year on board business.

"The question that remains unanswered is whether boards are becoming engaged at an appropriate or optimal level, or are crossing the line between board and management areas of responsibility," said Thorpe.

Boards have made the most significant progress in areas related to independence. The percentage of firms where all outside directors are independent has risen to 71 per cent — up from 66 per cent in 2008 and 58 per cent in 2006.

However, boards have made less progress in terms of diversity, said the report. The percentage of female directors is 10 per cent, an increase from eight per cent in 2008. Currently, 18 per cent of corporate boards have at least one director who is a member of a visible minority, an increase from 13 per cent in 2008.

Director certification is becoming an important criterion for director recruitment, with individuals being screened on whether they have graduated from a director's education program such as the Directors College (a joint venture of the Conference Board of Canada and McMaster University in Hamilton) or the Institute of Corporate Directors. Currently, chartered or certified directors hold 10 per cent of all seats on publicly traded boards.

As boards increasingly recruit directors from the pool of chartered or certified directors, it will be important for potential female directors and individuals from diverse backgrounds to pursue the appropriate director education programs if they aspire to serve on boards, said the Conference Board.

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