Among the key areas that deserve close attention by the Remuneration Committee (“RC”) of each listed company is the structuring of directors’ fees and determining the quantum payable to the members of the board of directors. Guideline 7.2 of the Code of Corporate Governance (the “Code”) sets this out as the express duty of the RC. To assist and provide guidance to directors in this area, this Statement of Good Practice seeks to set out guidelines on the computation and payment of fees for non-executive directors.
These guidelines cover five broad areas, namely,
The demands placed on non-executive directors have increased significantly in recent years. The nature of their work is becoming more complex, and issues presented to boards for decision and resolution are more varied than before.
It is useful for companies to periodically review fees paid to their non-executive directors. Fees need to be at a level that will attract, motivate and retain persons having the high standards of ability and character to carry out satisfactorily the critical and demanding functions of directors.
Given the diversity and size of companies and differing complexities of various businesses, it is not appropriate to arrive at a standard quantum of fees common for all non-executive directors. However, the level of fees paid should be appropriate to attract suitably qualified individuals who are able to effectively contribute to the proper oversight of the company.
The level of fees paid should take into consideration the qualifications and experience of directors required by the company, the general level of fees earned by directors in their professional capacities or billed by professionals like lawyers and accountants, time spent in preparation for meetings and actual attendance, indirect costs and expenses incurred by the directors, the level of effective contributions and responsibilities of the directors and also that the fees be fair to the company concerned. The Code reminds us that non-executive directors should not be over-compensated to the extent that their independence may be compromised.
As a best practice, companies are encouraged to fully disclose the fees of all directors.
The level of the chairman’s and board committee members’ fees should depend on their involvement with the company. As a guide, the following scale could be adopted:
| Board Chairman’s allowance: | Additional 100% of basic fees of an ordinary director |
| Chairman of Audit Committee’s allowance: | Additional 50-75% of basic fees of an ordinary director |
| Chairman of other committee’s allowance | Additional 25-50% of basic fees of an ordinary director |
| Member of committee’s allowance | Additional 50% of allowances paid to their respective committee chairmen |
As a guide, the maximum fees and allowances for a board chairman should not exceed 300% of the basic fees of an ordinary director, while the maximum fees and other allowances paid to any one director serving on various board committees should not exceed 200% of the basic fees of an ordinary director. This is to discourage the same director sitting on too many board committees.
In special circumstances, for example when a company is undergoing major restructuring or other situations requiring significant increased input from directors, companies may wish to consider additional payments for these directors.
In addition and as a complement to basic fees and allowances, companies are increasingly including non-executive and independent directors as participants in stock option schemes or share award plans that are established as long-term incentive schemes. If non-executive and independent directors are to be granted options or awarded shares pursuant to these share schemes, they are encouraged to hold their shares on a long-term basis and to refrain from trading in their shares based on short-term considerations.
It is good practice for the payment of basic fees and allowances for non-executive directors to be approved in advance rather than in arrears. Accordingly, fees for non-executive directors should be recommended for approval at the annual general meeting during the year for which the fees are to be paid. This approval need not include additional performance payments, whether in cash or non-cash or special payments, which can continue to be approved at the annual general meeting following the end of the fiscal year.
Once the fees have been approved, companies could use their own discretion to pay the fees to the non-executive directors either monthly or quarterly.
In order for directors to carry out their responsibilities effectively, all newly appointed directors should be given company orientation and also attend appropriate director training programmes prior to or upon their appointment. As stated in Guideline 1.6 of the Code, this will ensure that incoming directors are familiar with the company’s business and governance practices. These training programmes can be in areas such as accounting, legal and industry-specific knowledge.
Beyond training for first-time or incoming directors, the Code goes further to recommend that directors receive further relevant training from time to time, particularly on relevant new laws, regulations and changing commercial risks. As a guide, it is recommended that all directors undertake at least 10 hours of continuous training per year to keep themselves abreast of changes and developments.
All directors should ensure that they are able to devote sufficient time and attention to the companies on whose boards they sit. Each individual director must bear this responsibility in mind when accepting additional board appointments. The Nominating Committee should decide if a director is able to and has been adequately carrying out his duties as a director of the company. The Code also recommends that each company adopt internal guidelines that address the competing time commitments that are faced when directors serve on multiple boards.
