Every workman deserves his/her wages but not unduly. Board remuneration is a sticky point in most company relationships especially between executives and non-executives. It is therefore required that board remuneration be set at a level that will attract, motivate and retain persons with high standards of ability and character necessary to carry out satisfactorily, directors’ critical and demanding functions.
Failure to attract the right persons to the board could negatively affect the efficiencies of companies regarding the returns to their shareholders. Board remuneration should be pegged at the level which would not sway the independence of the non-executive director. Remuneration should accurately reflect responsibilities and risk involved in being an effective director.
Components of Board Remuneration Base Fees
The general level of remuneration should reflect daily rates of fees earned by directors in their professional capacities. The remuneration should also encapsulate the hours spent in travel and preparation for meetings as well as actual attendance.
Indirect costs, such as office expenses, secretarial support and keeping up to date with matters pertinent to the role of directors should be separately reimbursed. A fair and reasonable allowance for such costs should be included in the base fee as appropriate for the type of company.
Base fees for board members should not be dependent on company performance. In all fee determinations, the remuneration fixed by the directors must be fair to the company. For companies with shares, it is good practice for the fees to be sanctioned by the shareholders at the Annual General Meeting (AGM).
For many Ghanaian companies, the practice is for the directors to seek approval from the shareholders to determine their own fees. The shareholders therefore do not approve the actual amount. The shareholders only source of knowledge of director’s remuneration is from the annual accounts as a result of the disclosure requirements.
Payment of base fees would normally take the form of cash or shares.
Payment in shares has the advantage of aligning the remuneration of board members to the interests of shareholders, thereby increasing the focus of directors on company performance and share value.
Determination of Fees
Base fees should, wherever possible, be shared equally except in the case of additional responsibility or workload as in the case of the chairperson or deputy chairperson. The level of the chairperson and the deputy’s fees should depend on the extent of their involvement with the company. The chairperson could receive about 200% of the fee of the ordinary director whilst a deputy chairperson receives about 125%. Board fees should be reviewed at least once a year.
Supplemental work resulting from the membership of board committee (e.g. Audit, Remuneration etc.) should be spread as evenly as possible among board members and recognized in the level of the base fee. If supplemental fees are charged separately they may be calculated as a daily rate rather than annually. Supplemental fees should be subject to review in the same manner as the base fees.
Re-Imbursement of Expenses
Directors are to ensure that they are re-imbursed for all direct and indirect expenses such as office, secretarial, accommodation and transport expenses. Accommodation and transport expenses should be those incurred in attending all meetings of directors and board sub-committees, shareholders’ meetings or otherwise in connection with company business. Where a director uses his personal transport to transact official business, traveling expenses should include a realistic mileage allowance.
Ideally, there should be a formally appointed remuneration committee of the board. This committee should be composed wholly or substantially of non-executive directors with access to independent surveys and consultants. This can be a useful mechanism for the determination of all the essential components of remuneration and establishing remuneration responsibility with shareholders. The remuneration of the non-executive directors should not be part of the remit of the committee.
Public, Political and Shareholder Acceptance
Board matters are usually sensitive and attract public attention at the least opportunity. Every effort should therefore be made to promote a fair and equitable remuneration base for the board members. This should be in conformity to the company’s stature and ability to pay.
Many organisations within the public sector of Ghana, submit recommendations on board fees to their sector ministries for approval. Formal remuneration policies should encompass matters such as; the philosophy behind remuneration assessments, the criteria for remuneration setting, the remuneration components, and the composition and the role of the remuneration committee, and the disclosure of such policies to shareholders. The adoption by companies of such policies can indicate to the public that the organisation has a responsible approach to remuneration issues.
It is important that the financial interest of the board members does not overshadow the objective of the company as a whole. There is the propensity for some board members to turn the company into a piggy bank via board allowances and fees. This would affect the financial performance of the company and eventually create all sorts of internal and external problems.