Companies with annual revenue of $1-billion to $5-billion recorded 75-per-cent director pay growth between 2011 and 2015, while companies with revenue of more than $5-billion had 33-per-cent growth in the same period.DenisIsmagilov
The escalation of executive pay in Canada is reaching beyond the corner office and into the boardroom, with pay for corporate directors soaring by 41 per cent between 2011 and 2015.
A review by the consulting firm Spencer Stuart of 100 large Toronto Stock Exchange companies shows directors' total pay, including equity grants, averaged $183,000 in 2015, a 5.5-per-cent increase over 2014 and a 41-per-cent growth rate from 2011, when director pay averaged $130,000.
The increase in directors' pay has outstripped even the growth in pay for the CEOs they supervise. A Globe and Mail report on Canada's 100 largest companies by market value showed CEO pay was up 21 per cent between 2011 and 2014.
Andrew MacDougall, who leads the Canadian board practice at Spencer Stuart, said the director pay increase has been fuelled by high pay growth among the smaller companies in the top 100.
Companies with annual revenue of $1-billion to $5-billion recorded 75-per-cent director pay growth between 2011 and 2015, while companies with revenue of more than $5-billion had 33-per-cent growth in the same period.
Many smaller companies are not only boosting pay to move closer to their larger peers in Canada, as well as those in the United States, which typically pay far more. Mr. MacDougall said smaller companies are recruiting a greater proportion of their new directors from the United States, pushing boards to raise their overall compensation to attract candidates.
In 2015, 44 per cent of new directors hired last year by the smaller companies came from outside Canada compared with 23 per cent at larger companies with revenue over $5-billion, Spencer Stuart data show.
"I think boards tend to feel that they need to be competitive, so as they undergo some sort of board search process, they start to get the sense that, 'Oh my goodness, remuneration is actually a consideration for some of these folks,'" he said. "And they look at their own remuneration and think, 'We actually are significantly under that comparable number from the U.S.'"
Mr. MacDougall said even a single U.S. director appointment can push pay up for a whole board. Data for 431 U.S.companies of comparable size to Canada's top 100 companies show U.S. directors earned an average of $260,000 (U.S.) in 2015, which is 42 per cent higher than Canada's average of $183,000 (Canadian) in local currencies, even before accounting for the higher value of the U.S. dollar.
Mr. MacDougall said the United States has more top executives than Canada, so boards feel they have to pay competitively to tap into that large talent pool.
The Spencer Stuart report also shows a continuing trend toward paying directors flat fees for their work rather than the traditional model of paying a base retainer and extra for attending meetings or sitting on board committees. The report shows 43 per cent of top 100 companies used flat fees in 2015, up from 23 per cent in 2011.
Mr. MacDougall said companies like flat fees because board chairs feel free to organize extra meetings or allocate work as needed without having to weigh whether they are worth the considerable additional costs.
However, flat fees averaged $21,000 a year more in 2015 than pay levels for companies using the retainer system – $198,000 versus $177,000 – which means the growth of flat fees has also helped spur overall pay growth.
The Spencer Stuart study also looked at recruitment trends for boards, finding women accounted for 45 per cent of new directors in 2015, up slightly from 43 per cent in 2014. There was significant variation depending on the industry, however.
For example, women accounted for 50 per cent of all new directors added to boards of mining companies between 2013 and 2015, a huge increase from just 14 per cent in the prior three-year period, 2010 to 2013. However, women were just 26 per cent of new directors hired at energy companies between 2013 and 2015, which was virtually unchanged from 25 per cent between 2010 and 2013.
Mr. MacDougall said many mining companies have made an effort to look broadly for qualified women for their boards, often hiring women from related industries that are not pure mining companies. He said many energy companies, however, still want directors with executive experience in that sector, which has a limited pool of senior women.
While virtually every company states a preference for women when starting a new director search, "how much of that is stated and stuck to, and how much is just stated, is very influenced by the sector we're working with," Mr. MacDougall said.