Realigning Board Compensation with Responsibilities
Realigning Board Compensation with Responsibilities
The perception that board fees are increasingly disconnected from the growing workload and expanding responsibilities complicates the essential broadening of the recruitment base to corporate boards. This misalignment poses a growing risk to the competitiveness of the business sector. Consequently, it is imperative that company owners adjust compensation structures to keep pace.
To maintain a competitive business landscape, the right conditions must be established. This includes stable and predictable regulatory frameworks, the generation of new knowledge through research and innovation, and access to a skilled and well-educated workforce, along with risk-tolerant capital investments.
Growing Professionalism
The importance of possessing the right skills and commitment on company boards cannot be overstated. In these times of significant change and complexity, the value of professional board work has become more apparent than ever, challenging companies to navigate effectively. Thus, there is a greater need to cultivate a broad talent pool of board candidates, encompassing diverse experiences and perspectives, who can shape the successful companies of tomorrow.
Heightened Demands
Concurrently, the demands on boards of directors, particularly in publicly listed companies, are intensifying, increasing both the workload and responsibilities. The proliferation of complex regulations, alongside the need for preventive risk management and compliance, demands more time and attention. Additionally, board members face personal liability for damages and public scrutiny, which underscores the gravity of their roles. The dual challenge for boards lies in maintaining robust governance while advancing the strategic agenda to generate maximum and sustainable value.
The number of meetings held over the year will vary, but involvement in at least a bi-monthly board meeting, along with committee meetings and continuous interactions within the board and with management, is commonly required. This is especially true for the board chair, who plays a critical role as the leader of the board and as an advisor to the CEO, particularly during significant undertakings such as CEO recruitment, acquisitions, or crises.
Slow Progress
Research conducted by European board organisations ecoDa and WTW, in collaboration with Styrelseakademien and Alumni, reveals that 90 per cent of board members believe the complexity and time demands of their roles have increased in the last three to five years, with two-thirds finding the increase significant. Despite this, compensation for board roles has grown modestly, leading four out of five respondents to deem current remuneration as unreasonable for the scope of their duties. This sentiment is echoed across various countries.
Catharina Mannerfelt
Partner and Head of Alumni’s Board Services
E-mail
“Although board roles are obviously attractive, it is becoming more common for approached candidates to decline, especially when it comes to assignments in listed companies, not to mention state-owned companies where the fees are even lower than for the corresponding private company.”
Unmatched Remuneration Risks Setback
It is challenging to argue that the 1,500 individuals engaged in board roles within Sweden’s major stock market are unfairly treated. They have knowingly accepted the workload and responsibility for the compensation offered. However, this compensation structure limits the pool for future board recruitments, potentially stunting the long-term development of the business sector and adversely affecting diversity. Recruiting international directors, particularly given the relatively lower fees in Nordic compared to Anglo-Saxon countries, presents similar challenges domestically.
The solution is fundamentally straightforward: board remuneration must be reevaluated to reflect the increased time commitment and responsibilities accurately. Ensuring that compensation is proportionate to the effort is a crucial task for companies' nominating committees. Ultimately, this reflects the owners' ambition to attract the right individuals to support the company’s long-term development.
Further reading:
In April 2024, Alumni together with Styrelseakademien published an op-ed on this topic, in Sweden’s leading business daily, Dagens Industri, DEBATT: Oskäliga arvoden krymper rekryteringsbasen för bolagsstyrelser.
We also hosted a webinar earlier this year with four renowned panellists: Petra Hedengran, Anders Oscarsson, Åsa Hedin, and Håkan Broman.
If you are keen to discuss this topic further or wish any more information, please contact us!
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