Board pay inflation stalls across Europe

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  • Non-executive director pay remains static in most countries.
  • Non-executive chairs earn 5 times that of general directors on Italian boards, but just 1.3 times the amount on Dutch boards.
  • Female board representation improves, but gender pay gap widens, from 7 per cent in 2011 to 9 per cent in 2012.

Executive pay restraint exercised across Europe is being reflected in non-executive directors’ fees, according to the latest report on the structure and remuneration of European boards from global management consultancy, Hay Group.

Whilst pay practices are diverse for non-executive directors across the continent – particularly with respect to the difference in pay between chair and non-chair roles – NED fees typically remained frozen year-on-year in most countries.

The study also reveals progress in the representation of women on Europe’s boards, but shows that the gender pay gap identified in last year’s report has widened further year-on-year.

The report, Non-executive directors in Europe is based on analysis of the latest annual reports from 390 companies listed on the major indices of 12 European countries.

Director pay restraint

Median ‘policy pay’, the rates a company states it will pay NEDs for service on the main board and committees, saw no movement year-on-year in all countries included in the study, except Sweden where director pay increased by 5 per cent (see Table 1 below for all median policy fees).

Executive pay also followed this trend, according to a separate Hay Group report, Top executive compensation in Europe – salaries rising 2 per cent in 2012, compared with 2.6 per cent last year, and bonuses flat year-on-year.

The Non-executive directors in Europe report also analyses ‘actual pay’, which is the total of fees paid out throughout the year, taking into account committees sat on, meetings attended, and any form of variable pay involved. The median actual pay for non-chair directors across Europe rose slightly from €71,500 in 2011 to €75,200 last year, but dropped for non-executive chairs from €237,900 in 2011 to €214,800 over the past year.

Swiss chairs took home by far the most money last year (median of €1,077,100), whilst chairs in neighboring Austria earned the least (€51,600). This trend was reflected for general directors, who earned €251,200 in Switzerland in 2012, but just €20,500 in Austria.

Carl Sjöström, director of executive reward for Europe at Hay Group, comments:

“The public, shareholder and regulatory pressures dampening executive pay inflation in Europe are clearly also influencing remuneration practices for non-executive directors on the continent’s boards.”

Pay patterns vary widely across Europe

One factor that varies significantly across Europe, according to the study, is the differential between director pay and the pay of the chair of the board.

Chairs of Italian companies are the most highly paid compared to other board directors, earning over 5 times the amount. Chairs of companies based in the Netherlands, by contrast, earn approximately 1.3 times as much as other board directors (see Table 2 below for all pay multiples between chairs and average directors across Europe).

More women on boards, but significant pay gap persists

Finally, the Hay Group study shows that the representation of female directors on boards across Europe has improved slightly year-on-year, but that the significant gender pay gap identified in last year’s report persists.

Although 83 per cent of European directors are male, the report demonstrates a noticeable uptick in female representation on boards. Only one of the 12 countries included in the study – Italy – had a 90 per cent or greater male presence on the board in 2012. In 2011, however, 7 out of the 12 countries exceeded the 90 per cent mark for male domination.

Yet, despite these improvements, the gender pay gap has widened on European boards, as women are still not being appointed to the top-paying, strategically important committee roles. Additionally, barely two per cent of non-executive chairs across Europe are held by women.

This translated into an ‘actual pay’ gap of 9 per cent between male and female board members in 2012 (broadening to as much as 22 per cent in Italy), which widened from 7 per cent in 2011 (see Table 3 below for the board level gender pay gap across Europe).

Carl Sjöström comments: “Despite more women being appointed to European boards, the opportunities offered to them when they get there are clearly still lacking.

“Scandinavia leads the way in board gender diversity. This is perhaps unsurprising in Norway, where quotas introduced in 2003 have boosted female representation on its boards to 38 per cent, but in Sweden and Finland, where no such quotas exist, the proportion of female directors has increased over recent years to 28 per cent, in both cases purely as a result of public pressure and changes in attitudes.

“Quotas may not be the answer to raising boardroom diversity. However, what’s certain is that companies across Europe must accelerate their efforts to develop strong leaders from a range of backgrounds, in order to fill non-executive positions with the very best talent.”

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