London, 16 December 2013
A unique, 12-country annual study of 393 of Europe’s largest quoted companies provides the most detailed and up-to-date picture so far of the non-executive directors (NEDs) supervising them. The report ‘Non-executive directors in Europe 2013’, produced by global management consultancy Hay Group, finds that:
• While the gender mix continues to improve the pay gap has widened, with men paid 10 percent more than women
• The gap in fee levels between Audit and Remuneration committees continues to close
• Swiss firms pay NEDs most, Austrian firms least
• Pharmaceuticals firms pay NEDs most; transport firms least
The study portrays the typical European NED as a 60 year-old man. He is from the same country where the company he serves is listed and/or headquartered, and has spent the majority of his career in that country. His fees were €86,000 last year but were almost three times as much if he is chairman. He has eight colleagues, two of them women, and attends eight board meetings a year – five more if he sits on a board committee.
Gender diversity: mix improves but pay gap widens
The study shows that gender mix in this cohort is continuing to improve at the median. In the last three years the percentage of male board directors has moved from 87 to 83 last year and is now 80 percent. It also shows that some countries are moving faster than others. Italian companies, though they remain bottom of the league for gender diversity, have made comparatively great strides, moving from 94 percent male directors last year to 89 percent this year.
While women are securing more NED roles, the study shows they still earn less than their male counterparts. Two years ago the average pay gap was 7 percent, last year it was 9 and this year it has risen to 10 percent.
Commenting on these findings, Carl Sjöström, regional director, Reward Services Europe at Hay Group said:
“While this is welcome progress many will see it as nothing more than glacial. While the group studied is not responsible for running the firm, they are highly influential and are just as susceptible to ‘group-think’ and the other negative traits associated with any non-diverse group.
“As we’ve said before, culture makes a difference; as does legislation but not always directly. For example Norway, which mandated a 40 percent quota for women on boards in 2003, has the highest proportion of female directors, but its neighbours Sweden and Finland are not far behind without such legislation.
“Companies generally pay the same amount to all NEDs so the explanation for the pay gap is that more men than women secure positions on board committees, which carry extra fees. If we look at the data from a country perspective we see large variations; in Germany and Italy, for example, men are paid 22 percent more than women.”
The median actual pay earned by NEDs in Europe this year was €86,000. Swiss companies continue to pay the most at €273,000 while Austrian companies continue to pay least at €27,000. The median fee earned for non-executive chairs across Europe was €249,000 this year. Highest and lowest paying sectors are identified as pharmaceuticals and transportation, respectively.
Carl Sjöström comments:
“The differences between countries are stark. On the one hand we have Swiss non-executive chairs earning the most with €830,000 at the median while, just across the Alps, their Austrian counterparts earn the least at €53,000. Differences in company size, sector, board responsibilities and other factors can only partly explain this huge difference.
“There is a strong correlation between size of company and pay in some countries and industries but not in all. Reward culture is certainly a major factor. The other strong correlation we find is that industries with a significant focus on risk tend to pay higher NED fees.
“We also see a big pay differential in other ways. Non-executive chairmen of UK, Italian and French companies are paid over four times as much, on average, as other NEDs, whereas in the Netherlands the difference is much smaller at just 1.34 times.”
Committee fees: Remuneration closing the gap on Audit
Hay Group’s study shows that while NEDs sitting on Audit committees still receive higher fees than those sitting on Remuneration committees, the gap continues to close, at both chairmen and membership levels.
Carl Sjöström said:
“Audit took on a special significance post-Enron and since then it has always paid more to attract the right calibre of director to cope with the questions and tasks the committee must tackle. However, the ever increasing sensitivity and complexity of executive reward is proving to be the challenger to Audit’s crown, as far as talent and pay is concerned.
“It’s also encouraging to see more diverse board committees. Two years ago 65 percent of Audit committees had no women and likewise 69 percent of Remuneration committees. We’ve seen a significant change: this year the numbers are 43 percent and 48 percent, respectively, although this is still not enough to close the pay gap.”
Diversity: nationality and experience
Boards are also becoming more diverse in other ways. Fewer directors, 66 percent at the median, are from the same country of company listing/headquarters; a fall of three percentage points on last year. Between countries, however, there are marked differences: NEDs serving Spanish, Italian, Austrian and German companies have low levels of internationality, whereas Swiss, Dutch and Belgian firms often have half the board with an international profile.
“Gender diversity tends to grab the headlines but the cultural diversity of boards reflected in their internationality is at least as important, says Mr Sjöström.
“The improving diversity of Europe’s boards is a very positive sign that different perspectives are increasingly allowed - to challenge both each other’s and operating management’s thinking and actions.”
About Hay Group: Hay Group is a global consulting firm that works with leaders to transform strategy into reality. We develop talent, organize people to be more effective, and motivate them to perform at their best. With 86 offices in 48 countries, we work with over 8,000 clients across the world. Our clients are from the private, public and not-for-profit sectors across every major industry, and they represent diverse business challenges. Our focus is on making change happen and helping people and organizations realize their potential.
About the study: Hay Group’s ‘Non-executive directors in Europe 2013’ study provides detailed benchmark data of the typical remuneration policy and board composition for a large European company, plus comparative data for 12 countries and multiple industry sectors.
Spokespeople: Carl Sjöström, regional director, Reward Services Europe, Hay Group, London. Consultants in Hay Group’s Executive Reward units in Europe are also available for those seeking to cover this story at individual country-level.
Contact: For further information and interview requests, please contact:
Louise Shaw, European marketing, Hay Group, Direct Tel. +44 (0) 20 7856 7239, email: Louise.Shaw@haygroup.com
Non-executive directors in Europe 2013
Hay Group's Non-executive directors in Europe report is the largest and most comprehensive study of its kind, providing a unique snapshot of the background, experiences and pay of the individuals responsible for the governance of Europe's leading companies More