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NON-EXECUTIVE

DIRECTORS’

FEES GUIDE

Your guide to benchmarking NED fees

2 nd Edition


Forward

Forward

Non-executive directors make an important contribution to the success of an enterprise in the modern world. Being a nonexecutive director has become a profession in its own right, partly driven by the unique challenges they face. Non-executive directors are tasked to make critical strategic decisions and to oversee the management of a company without the benefit of observing the business full-time. This requires particular skills, knowledge, experience and business judgement, for which they need to be fairly remunerated. Determining fair remuneration however, is complicated by the fact that non-executive directors’ contributions are made in a number of ways, which require varying time commitments and skills. For this reason, the IoDSA has commissioned remuneration specialists to survey the fees of non-executive directors as disclosed by JSE-listed companies in their annual reports. The result of this research is a guide that assists companies in assessing and deciding non-executive directors’ fees. Companies are enabled to arrive at a benchmark fee per individual director, using the average hourly rates specified for serving on the board, as well as the audit, remuneration and other committees. This second edition of our publication features changes to the presentation of information in order to facilitate ease of use. We believe this guide provides a variety of detailed information that is unique in its kind and useful for remuneration committees and boards to take into account. This information includes: • Average annual fees per director according to the size of the company • Average time per board and board committee meeting • Fees per chairman and other members • Fees per board and board committee meeting • Fees per meeting and per hour It is our hope that this guideline will serve to further establish the vital role of non-executive directors by ensuring that they are appropriately rewarded for their time and expertise devoted to an onerous and important task.

Chief Executive Officer Institute of Directors in Southern Africa April 2013

© This guide has been compiled based on a survey by P-E Corporate Services (SA) (Pty) Ltd. on behalf of the Institute of Directors in Southern Africa (IoDSA), which holds the copyright.

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Index

INDEX

1.

Sources of data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

2. Categorisation of companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 4. Research methodology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 5. How to use this survey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 6. Annual averages of fees per director. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 7. Detailed information on directors’ fees and meetings . . . . . . . . . . . . . . 7 8. Interpretation of statistics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 9. How to compile a tariff of fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Š This guide has been compiled based on a survey by P-E Corporate Services (SA) (Pty) Ltd. on behalf of the Institute of Directors in Southern Africa (IoDSA), which holds the copyright.

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1. Sources of data The data used for this survey was extracted from the annual reports of JSE listed companies for financial year-ends up to the end of 2011. Companies that were excluded were passive investment holding companies, companies whose primary listing are foreign, as well as de-listed and suspended companies, thus reducing the database to approximately 270 companies. Of these, 177 companies disclosed sufficient information to allow overall averages to be computed. Of the 177 companies, 147 provided further information regarding tariffs of fees broken down by committee as well as by chairperson and member. The data captured covers information relating to independent non-executive directors only, including meeting attendances, fees paid and the tariff of fees as disclosed.

2. Categorisation of companies The companies surveyed were divided according to size into five categories ranked by market capitalisation as at 31st December 2011; the breakpoints across the database in 2011 being as follows: Table 1 – Company levels based on market capitalisation Market Cap. (Rm.) Level

Minimum

Maximum

L1

10

144

L2

145

595

L3

644

2 738

L4

2 769

13 168

L5

13 419

270 904

3. Definitions The following definitions were applied:

‘Independent non-executive director’ – a director serving on the main board of the company who does not represent a major shareholder or stakeholder, is not a major shareholder and did not serve as the chief executive officer during the two years prior to the year of the survey. ‘Audit committee’ – includes the Audit and Risk Committee and committees with substantially the same function. ‘Remuneration Committee’ – includes the Remuneration and Nominations Committee, the HR Committee or committees with substantially the same function. ‘Other Committee’ – includes all other board committees.

4. Research methodology The average of the annual fees paid per director was established by dividing the total fees paid to all directors by the number of directors in the category. Only directors who have served the full year were considered, and total fees were adjusted accordingly. (See Table 2 in Section 6 for these statistics.) The average fee per meeting was established by dividing the annual fees paid to directors in the category by the number of meetings held per annum. All listed companies were invited to complete a questionnaire estimating the time taken up by independent non-executive directors in: • preparing for meetings; • attending meetings; and • following up on matters arising from meetings attended.

© This guide has been compiled based on a survey by P-E Corporate Services (SA) (Pty) Ltd. on behalf of the Institute of Directors in Southern Africa (IoDSA), which holds the copyright.

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In addition, the request was for the information to be broken down further into time spent on the main board, as well as the various board committee activities. The average number of hours per area of activity were obtained in this way and applied to the fee tariffs that were fully disclosed to obtain an estimate of fees per hour, per day and fees per meeting attended. (See Tables 3.1 to 3.5 in Section 7.)

5. How to use this survey The notes in Section 8 - ‘Interpretation of statistics’ - are important for gaining a full understanding of the survey results. To enable companies to compute an aggregate amount of directors’ fees, for presentation to shareholders for adoption in terms of section 66 of the Companies Act, a worksheet: ‘How to compile a tariff of fees’ has been included in Section 9.

6. Annual averages of fees per director In order to contextualise the detailed information to follow, the table below lists the number of companies in each size category according to the average: • number of independent non-executive directors per company • number of meetings per year at board and committee level • fees paid per annum to independent non-executive directors. Table 2 – Average number of meetings per company and fees per director per annum Average appointments per company

Average fees per director

Average meetings per company

54

2.5

46 499

13.2

73

2.8

94 874

12.1

28

100

3.6

75 636

14.8

36

186

5.2

79 214

15.4

No. of companies

Total no. of appointments

L1

22

L2

26

L3 L4

Size category

L5

35

249

7.1

81 196

19.2

Total

147

662

4.5

78 477

15.3

7. Detailed information on directors’ fees and meetings The following tables detail each size category, the average time spent per meeting and the average fees: • per meeting • per hour, and • per day. The information is split up according to activities at board level and the various board committees.

© This guide has been compiled based on a survey by P-E Corporate Services (SA) (Pty) Ltd. on behalf of the Institute of Directors in Southern Africa (IoDSA), which holds the copyright.

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Table 3.1 – Market capitalisation below R144m – Level 1 Numbers in sample – Companies 22 Directors 54 Main board activities

Capacity

Chairman Member

Average meetings per annum

Ave. est. time per meeting per director (hours) Preparing

Attending

Follow up

1.50

2.25

0.75

1.25

2.25

0.75

4.6

Ave. fees per director (R) Per meeting

Per hour

Per day

(see note below) 10 898

2 564

20 512

Note: The chairman’s fee for the sample was in the range from R80 000 to R 350 000

Audit Committee activities

Capacity

Chairman Member

Average meetings per annum

Ave. est. time per meeting per director (hours)

Ave. fees per director (R)

Preparing

Attending

Follow up

Per meeting

Per hour

Per day

2.00

3.50

1.50

31 997

4 571

36 568

2.00

3.50

0.75

13 802

2 208

17 664

4.0

Remuneration Committee activities

Capacity

Chairman Member

Average meetings per annum

2.3

Ave. est. time per meeting per director (hours)

Ave. fees per director (R) Per meeting

Per hour

Per day

0.50

6 719

2 067

16 536

0.25

2 895

1 158

9 264

Preparing

Attending

Follow up

1.50

1.25

1.00

1.25

Other Committee activities (averaged)

Capacity

Chairman Member

Average meetings per annum

0.9

Ave. est. time per meeting per director (hours)

Ave. fees per director (R)

Preparing

Attending

Follow up

Per meeting

Per hour

Per day

0.50

0.67

0.42

n/d

n/d

n/d

0.50

0.67

0.17

n/d

n/d

n/d

‘n/d - not disclosed as the sample sizes are statistically unreliable. The rate per day is based on the hourly rate for an eight-hour day.

© This guide has been compiled based on a survey by P-E Corporate Services (SA) (Pty) Ltd. on behalf of the Institute of Directors in Southern Africa (IoDSA), which holds the copyright.

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Table 3.2 – Market capitalisation between R145m and R595m – Level 2 Numbers in sample – Companies 26 Directors 73 Main board activities

Capacity

Chairman Member

Average meetings per annum

Ave. est. time per meeting per director (hours) Preparing

Attending

Follow up

3.00

5.00

2.33

3.00

5.00

1.00

5.0

Ave. fees per director (R) Per meeting

Per hour

Per day

(see note below) 22 160

2 462

19 696

Note: The chairman’s fee for the sample was in the range from R40 000 to R 486 000

Audit Committee activities

Capacity

Chairman Member

Average meetings per annum

Ave. est. time per meeting per director (hours)

Ave. fees per director (R)

Preparing

Attending

Follow up

Per meeting

Per hour

Per day

3.00

3.67

2.00

34 706

4 005

32 040

2.33

3.67

1.33

21 385

2 916

23 328

3.0

Remuneration Committee activities

Capacity

Chairman Member

Average meetings per annum

2.0

Ave. est. time per meeting per director (hours)

Ave. fees per director (R)

Preparing

Attending

Follow up

Per meeting

3.00

2.67

1.67

16 263

2 218

17 744

2.83

2.67

1.00

18 374

2 827

22 616

Per hour

Per day

Other Committee activities (averaged)

Capacity

Chairman Member

Average meetings per annum

1.0

Ave. est. time per meeting per director (hours)

Ave. fees per director (R)

Preparing

Attending

Follow up

Per meeting

Per hour

Per day

0.81

0.89

0.67

n/d

n/d

n/d

0.56

0.67

0.22

n/d

n/d

n/d

‘n/d - not disclosed as the sample sizes are statistically unreliable. The rate per day is based on the hourly rate for an eight-hour day.

© This guide has been compiled based on a survey by P-E Corporate Services (SA) (Pty) Ltd. on behalf of the Institute of Directors in Southern Africa (IoDSA), which holds the copyright.

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Table 3.3 – Market capitalisation between R644m and R2738m – Level 3 Numbers in sample – Companies 28 Directors 100 Main board activities

Capacity

Chairman Member

Average meetings per annum

Ave. est. time per meeting per director (hours) Preparing

Attending

Follow up

4.67

4.17

3,17

4.83

4.17

2.33

5.5

Ave. fees per director (R) Per meeting

Per hour

Per day

(see note below) 23 974

2 115

16 920

Note: The chairman’s fee for the sample was in the range from R97 200 to R 1 491 000

Audit Committee activities

Capacity

Chairman Member

Average meetings per annum

Ave. est. time per meeting per director (hours)

Ave. fees per director (R)

Preparing

Attending

Follow up

Per meeting

Per hour

Per day

4.33

3.67

2.67

55 449

5 198

41 584

3.00

3.67

2.50

20 432

2 229

17 832

3.9

Remuneration Committee activities

Capacity

Chairman Member

Average meetings per annum

2.7

Ave. est. time per meeting per director (hours)

Ave. fees per director (R)

Preparing

Attending

Follow up

Per meeting

Per hour

Per day

2.08

2.33

2.17

15 273

2 320

18 560

2.00

2.25

1.17

16 653

3 074

24 592

Other Committee activities (averaged)

Capacity

Chairman Member

Average meetings per annum

2.4

Ave. est. time per meeting per director (hours)

Ave. fees per director (R)

Preparing

Attending

Follow up

Per meeting

Per hour

Per day

1.28

0.91

0.97

n/d

n/d

n/d

0.83

0.74

0.61

n/d

n/d

n/d

‘n/d - not disclosed as the sample sizes are statistically unreliable. The rate per day is based on the hourly rate for an eight-hour day.

© This guide has been compiled based on a survey by P-E Corporate Services (SA) (Pty) Ltd. on behalf of the Institute of Directors in Southern Africa (IoDSA), which holds the copyright.

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Table 3.4 – Market capitalisation between R2769m and R13168m – Level 4 Numbers in sample – Companies 36 Directors 186 Main board activities

Capacity

Chairman Member

Average meetings per annum

Ave. est. time per meeting per director (hours) Preparing

Attending

Follow up

5.75

4.81

3.38

4.38

4.81

2.75

5.2

Ave. fees per director (R) Per meeting

Per hour

Per day

(see note below) 39 284

3 291

26 328

Note: The chairman’s fee for the sample was in the range from R250 000 to R 4 064 040

Audit Committee activities

Capacity

Chairman Member

Average meetings per annum

Ave. est. time per meeting per director (hours)

Ave. fees per director (R)

Preparing

Attending

Follow up

Per meeting

Per hour

Per day

5.38

4.19

3.00

60 377

4 806

38 448

3.88

3.94

2.13

34 854

3 507

28 056

3.4

Remuneration Committee activities

Capacity

Chairman Member

Average meetings per annum

3.4

Ave. est. time per meeting per director (hours)

Ave. fees per director (R)

Preparing

Attending

Follow up

Per meeting

Per hour

3.31

2.50

2.25

20 073

2 490

19 920

1.88

2.63

1.50

21 031

3 505

28 040

Per day

Other Committee activities (averaged)

Capacity

Chairman Member

Average meetings per annum

3.0

Ave. est. time per meeting per director (hours)

Ave. fees per director (R)

Preparing

Attending

Follow up

Per meeting

Per hour

Per day

0.98

0.87

0.69

n/d

n/d

n/d

0.64

0.79

0.56

n/d

n/d

n/d

‘n/d - not disclosed as the sample sizes are statistically unreliable. The rate per day is based on the hourly rate for an eight-hour day.

© This guide has been compiled based on a survey by P-E Corporate Services (SA) (Pty) Ltd. on behalf of the Institute of Directors in Southern Africa (IoDSA), which holds the copyright.

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Table 3.5 – Market capitalisation above R13419m – Level 5 Numbers in sample – Companies 35 Directors 249 Main board activities

Capacity

Chairman Member

Average meetings per annum

Ave. est. time per meeting per director (hours) Preparing

Attending

Follow up

6.82

5.14

3.91

4.91

5.14

2.00

6.6

Ave. fees per director (R) Per meeting

Per hour

Per day

(see note below) 38 782

3 220

25 760

Note: The chairman’s fee for the sample was in the range from R346 000 to R 4 050 000

Audit Committee activities

Capacity

Chairman Member

Average meetings per annum

Ave. est. time per meeting per director (hours)

Ave. fees per director (R)

Preparing

Attending

Follow up

Per meeting

Per hour

Per day

6.00

4.59

4.55

89 644

5 922

47 376

4.45

4.59

3.00

37 835

3 141

25 128

4.6

Remuneration Committee activities

Capacity

Chairman Member

Average meetings per annum

4.0

Ave. est. time per meeting per director (hours)

Ave. fees per director (R) Per meeting

Preparing

Attending

Follow up

Per hour

Per day

4.00

2.91

2.73

25 468

2 643

21 144

3.23

2.91

1.82

29 079

3 656

29 248

Other Committee activities (averaged)

Capacity

Chairman Member

Average meetings per annum

5.4

Ave. est. time per meeting per director (hours)

Ave. fees per director (R)

Preparing

Attending

Follow up

Per meeting

Per hour

Per day

0.84

0.87

0.58

n/d

n/d

n/d

0.70

0.87

0.35

n/d

n/d

n/d

‘n/d - not disclosed as the sample sizes are statistically unreliable. The rate per day is based on the hourly rate for an eight-hour day.

© This guide has been compiled based on a survey by P-E Corporate Services (SA) (Pty) Ltd. on behalf of the Institute of Directors in Southern Africa (IoDSA), which holds the copyright.

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8. Interpretation of statistics Please note the following:

Inflationary adjustment: The statistics presented reflect the level of remuneration for companies whose financial years ended on 31st December 2011. The weighted average effective date of the sample is around 30 June, 2011. Inflation should be allowed for from that date. Chairman’s fees: In the case of chairmen of the main boards, the fees in many cases inevitably include some element of remuneration for representational duties and/or ad hoc duties outside the scope of the routine activities of the board. It was found that the fees earned by this category reflected such a broad range that the statistical averages were meaningless. For this reason, instead of the average fees, merely the range is reflected. Variation in the rates between committees: It is unlikely that the fee rates applying to ‘other’ committees on the above table are statistically reliable, especially at Levels 1 and 2. That is because the nature of these committees and the scope of their mandates differs substantially from company to company. As the activities of these committees stabilise in the future, these statistics are likely to become more reliable. Relevance of size: Regarding the average fees for the various size categorisations, it is interesting to note that there does not appear to be a strong correlation based on company size. Larger companies pay higher fees in aggregate because they demand more time; but the fee rate per day is roughly the same as for smaller companies. This makes sense when one considers that a high proportion of professional directors serve both on small company and large company boards. They also tend to be selective concerning their appointments based on the nature of the enterprise rather than on the magnitude of the underlying investment of funds. In summary, an appointment to a small market cap size company may be as onerous, if not more so, than an appointment to a large cap company due to the formative and transitional nature of the strategic decision-making. Significance of average rates per day: The average rates per day were computed for comparison to the average fees per day chargeable by professional lawyers and accountants, with the expectation that there would be some correlation. This seems to be established by the tables, which reflect a recovery rate for ordinary member appointments at a rate of between R12 000 and R20 000 per day on average. Application to unlisted entities: The average rates per day computed in this survey may also be used as a guideline for other organisations (i.e. private companies, government entities, non-profit organisations) since the role of non-executive director at these organisations may be similarly onerous. It may be argued that lower or higher levels of responsibility may apply to such appointments. In this case, a differential factor of up to 33% below or above the survey figures may apply.

© This guide has been compiled based on a survey by P-E Corporate Services (SA) (Pty) Ltd. on behalf of the Institute of Directors in Southern Africa (IoDSA), which holds the copyright.

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9. How to compile a tariff of fees The following worksheet illustrates how a tariff may be compiled using the rates per hour which are established in this survey. Working Schedule

Hourly rate

Estimated time per x x meeting (preparation, attending, follow up)

No. of meetings per annum

x

No. of directors

=

Cost to company

Board Chairman Members

x

x

x

=

x

x

x

=

x

x

x

=

x

x

x

=

x

x

x

=

x

x

x

=

Audit Committee Chairman Members Remuneration Committee Chairman Members Other Committee Chairman Members Other Committee Chairman Members Other Committee Chairman Members

* Based on policy that all board meeting are attended

Total

Š This guide has been compiled based on a survey by P-E Corporate Services (SA) (Pty) Ltd. on behalf of the Institute of Directors in Southern Africa (IoDSA), which holds the copyright.

14


Notes:

Š This guide has been compiled based on a survey by P-E Corporate Services (SA) (Pty) Ltd. on behalf of the Institute of Directors in Southern Africa (IoDSA), which holds the copyright.

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