Non-executive directors at British companies are still enjoying tidy pay rises, but the rate of increase has leveled off and directors are expected to work harder for their money, according to a study by PricewaterhouseCoopers.
The percentage growth in non-executive pay slowed again last year, and companies expect their non-execs to work longer hours and to show that their efforts make a difference, the study found.
Pay rose by 25 percent in 2005 as companies adapted to the Sarbanes-Oxley Act and the Higgs Report, which reviewed the role and effectiveness of non-execs. But in 2006 pay was up by only 16.7 percent, and the rate of increase fell again last year to 15.6 percent.
A non-executive director at an FTSE 100 company now earns an average $119,515, rising to $575,512 for a non-executive board chairman. The average director’s time commitment has risen from 15 days in 2003 and 20 days in 2007 to 21 days in 2008.
O’Hare
PwC Partner Sean O’Hare says the rate of pay increases is easing as companies work harder to balance fees with the responsibilities that come with the role. More than 80 percent of companies now have a formal review of board, committee, and individual directors’ performance each year.
“As fee increases become more moderate, we can expect more focus by institutional shareholders on the disclosure of non-executive directors’ effectiveness rather than merely what they earn,” O’Hare says.
To date, companies have tended to limit their disclosures on director pay and performance to a simple confirmation that they comply with the Combined Code on Corporate Governance, O’Hare says, adding: “We expect to see this change over the next few years.” Possible future disclosures include information about the quality of performance reviews and any key action points, he says.
EU Members Drag Heels on Audit Reform
Many of the European Union’s 27 member states still have not implemented a directive aimed at boosting the quality of external audit work, missing a deadline to adopt new rules into national law by the end of June.
The Statutory Audit Directive is an important part of what is sometimes referred to as “Eurosox”—Europe’s response to Enron, WorldCom, and other financial scandals. The directive requires each member state to create a national public oversight system to monitor the quality of audit work. It also contains new rules in areas such as the disclosure of audit fees, the role of audit committees, and audit confidentiality.
An analysis released by the European Commission, the EU’s executive arm, showed that by the end of July only 12 member states had transposed all of the directive into their national laws. The Czech Republic and Ireland were among the worst offenders, with more than 50 parts of the directive not yet included in national law.
The Commission said seven member states did not yet have a public oversight system to monitor audit work, and one state that did have such a system had not yet appointed anyone to run it.
The Commission said it will keep its analysis up-to-date so that the European Parliament and the financial markets can see which countries are dragging their heels.
McCreevy
“The implementation and enforcement of the Statutory Audit Directive is particularly important at a time when financial markets face a difficult period and need to rely on robust audits of financial statements,” Internal Market and Services Commissioner Charlie McCreevy said in a statement.
Under the directive, audit firms from countries outside the EU that perform audit work in an EU member state are supposed to register with the relevant national oversight body. Because so many member states haven’t created an oversight body, the Commission has given such firms an extra two years to register. The decision will allow 30 audit firms to continue their work in Europe, it said.
Accounting Body Wants to Be Europe’s Voice
A group of accounting experts that advises the European Commission on financial reporting issues wants to widen its role to meet what it says is an “urgent” need for European input on global accounting issues.
The European Financial Reporting Advisory Group (EFRAG), created in 2001 to advise the Commission on Europe’s move to International Financial Reporting Standards, says Europe needed to speak with a stronger voice and have greater influence on the development of new IFRS. “The requirements of European Union stakeholders need to be articulated and their interests represented effectively,” it said in a recent statement.
The group says an expanded mission and a bigger budget would be the quickest way of responding to the call for greater European influence, something it says both the European Commission and the European Parliament want to see.
To date, EFRAG has focused its efforts on responding to discussion papers and exposure drafts issued by the International Accounting Standards Board and advising the Commission on whether to adopt new reporting standards and interpretations. With more money it says it would develop its own research, publish its own accounting ideas, and monitor IASB activities.
The need for change is urgent, EFRAG officials say, as more countries adopt IFRS. That is a veiled shot at the United States, which is likely to decide later this year whether to adopt IFRS for U.S. companies; many in Europe fear America will ultimately take over IFRS and dictate its future direction.
EFRAG is controlled and funded by a mix of business associations and accounting bodies, including the European Federation of Accountants. Last year, it had an income of $1.9 million. By 2010, it wants to increase its budget to $8.8 million and says that the Commission has pledged half of that if it makes promised governance reforms.
By contrast, the U.S. Financial Accounting Standards Board has total revenues of $37 million, and IASB’s parent body receives $31.2 million annually.
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