Canadian Mid-Market: Trends in Director Compensation - 2019 Proxy Season

Compensation Governance Partners aims to provide you with up-to-date executive compensation information and trends, via our proprietary compensation database (composed of fully evaluated and sized named executives from publicly-traded organizations). In this article, we will cover director / trustee compensation and board / committee composition from the 2019 proxy season from approximately 115 publicly-traded mid-market Canadian organizations listed on the TSX, including the TSX 100-200 companies.

Compensation for Directors and Trustees

Directors and trustees are typically paid a cash retainer as well as an equity retainer. Cash retainers are typically paid quarterly. Equity retainers are typically paid in deferred share units (DSUs). Lead Directors are independent directors who take on additional responsibilities when the Board Chair is non-independent. Of the organizations analyzed, 36 percent have a Lead Director. Below are the median retainers for independent board chairs, lead directors and independent directors:

Note that several organizations pay nominally based on director residence. That is, if their board retainer is $50,000, Canadian directors receive CAD$50,000 and American directors receive USD$50,000.

52 percent of board chairs and 61 percent of directors / trustees are paid both a cash retainer and an equity retainer. Directors receive additional compensation for committee memberships. Below are the median retainers that directors receive for the following committees:

Note that additional compensation for committee members is not typical. Only 43 percent of organizations pay an additional fee to audit committee members or governance committee members, while 38 percent pay an additional fee to compensation committee members. These fees are normally between $5,000 and $7,000 per year.

60 percent of organizations do not pay meeting fees and instead pay an “all-in” retainer. 40 percent of organizations use the variable approach; that is, they pay meeting fees separate from the retainer. The typical meeting fee for either a Board meeting or a committee meeting is $1,500, although some organizations pay a lower amount if the director attends the meeting by telephone and not in person. Some organizations also pay a travel fee if a director has to travel to attend a meeting in person. The median travel fee is $1,500 and is contingent on length of one-way travel of more than 3 or 4 hours.

Board and Committee Structures

The typical board has 3 or 4 committees, typically an Audit Committee, a Compensation Committee, and a Governance & Nominating Committee. Some organizations in specific sectors have additional committees. For example, organizations operating in the basic materials and energy sectors tend to have a committee to do with Environment, Health, Safety and Sustainability or some combination thereof, in addition to a Reserves committee. Organizations in the real estate sector tend to have an investment committee.

Below is a summary of the typical number of board members, board meetings and committees:

Audit committees typically meet quarterly, while compensation committees typically meet 5 to 6 times per year. Governance committees typically meet quarterly. These committees normally have 3 or 4 members each and are usually comprised solely of independent directors.

52 percent of boards have only 1 non-independent director (the CEO), while the other 48 percent of boards have an average of 3 non-independent directors including the CEO.

While most audit committees only have oversight for audit (and in some cases, risk), the compensation committee may also serve as the governance and/or nominating committee. Below is a summary of the types of mandates that are part of compensation committees:

Age & Experience of Directors

Among directors in the TSX mid-market, the average age is 61 years old and the average tenure is 7 years. Below is a breakdown of the age and tenure of directors in the TSX mid-market:

The issue of term limits for directors is particularly controversial, as Boards seek a balance between board renewal / diversity of ideas and continuity of leadership / relevant experience. Presently, 47 percent of boards have some form of term limits in place.

The table below shows the prevalence and typical practices of director term limits in place among those organizations with limits:

Note that boards can waive the limit for a director whose age or tenure exceeds these limits.