ITNEA Papers - remuneration, roles +

The following papers are published with input from the membership and third parties. Members with papers suitable for publishing here, please contact David Tebbs.

Demonstrating Sarbanes-Oxley compliance - a proven practical approach especially for subsidiaries and those meeting a customer requirement to comply

Many ITNEA members and other directors will be broadly aware of Sarbanes-Oxley (SOx) and its impact on corporate governance. For those directly concerned (directors of relevant US companies) hopefully, there will be plenty of professional advice available. The US companies concerned are defined as those with turnover of more than US$ 75m or more than 300 shareholders. Did you know that by the US Sarbanes-Oxley law the company is obliged to be audited by July 2006 for compliance? Failing the audit will mean expulsion from the NYSE or NASDAQ for the listed companies.

The impact is wider as directors of the of the subsidiaries of such companies will also be required to make an audited return to their parents and some European companies are being asked for compliance statements as part of supply contracts with concerned companies. Many of the latter will be on the boards of smaller organization in Europe (and elsewhere) that do not have the support organization and professional advice directly available to their parent/customer.

One of the main aspects to achieving a successful and cost effective SOx audit is to prepare a compliance documentation stating how compliance is achieved (documented procedures and processes to demonstrate compliance) and submitting that to the auditors for verification/approval. This is an area where separate professional support in documentation can be a useful option. This is an approach that members will be familiar with for systems and product documentation but a similar approach as been successfully applied to the special needs of Sarbanes-Oxley for European operations. A good example can be seen at Chelverton House's web site: Chelverton House & Sarbanes-Oxley .

Many companies develop excellent web sites as part of their corporate communications but fail to get full value from them by bringing the site to the attention of as many target viewers as possible. This paper addresses the topic as a briefing to non-executive directors. First Published in 2002.

We would like to thank top-pile ltd (net village) for their pro bono help to the ITNEA both in commenting on earlier drafts and through ongoing services helping the ITNEA promote its site on the web.

New direction companies need their non-executive directors to provide more help and guidance than ever before.

Paper on the role of the non-executive director published by infoconomy.com with lead input from ITNEA member Jane Tozer. First published in 2002.

Cancelling share options and reissuing them at a lower price can make sense for shareholders and managers - if backed by strong corporate governance. Paper by Victor Basta. First published in 2002.

This paper was produced by the ITNEA.. The paper explores some of the ways in which a non-executive director can make a positive contribution to their companies, over and above the minimum requirements of corporate governance.

This survey was carried out amongst the member of the ITNEA in early 2005. The survey sought to see how the remuneration and the context of the role of non-executive directors in the Technology sector has changed and is likely to change over time. A summary of results is included in the following press release of July 2005. Further data can be seen at Survey Results. pdf file

Technology Sector Non Executive Directors’ Fees Close To Inflation Since 1999, Despite Significant Increase In Risk & Governance Responsibilities

A survey of non-executive directors (NEDs) in the technology sector conducted by the Information & TMT Non-Executives Association (ITNEA) and Robert W Baird, the independent investment bank, has revealed that non-executive directors are spending more time on their duties than they were six years ago, with regulatory pressures resulting in increased responsibility and personal risk, for fee rates that have only changed close to inflation. The survey compares with an earlier survey undertaken in 1999.

According to the ITNEA/Baird report, average fees from the 153 directorships (chairmen and NEDs) were £29,509, compared with £25,476 in 1999. The average chairman’s fees were £36,037 and the average non-executive director’s fees were £25,110 (£26,990 including fees for committee chairmanship or membership), an effective rate increase of 3.5% per annum. During the same period Chief Executives’ total remuneration in the FTSE100 rose by 208%, or 21% pa, of which 8% pa was base salary increase. (source: Peter Brown, IRS Group).

The survey sample consisted of 153 UK non-executive directors and chairmen, covering 108 quoted and 45 unquoted companies. 42 respondents were in companies with a turnover of up to £5 million, 17 in £5-£10m, 48 in £10-50m, 20 in £51-100m, 23 in £101-£1000m, and 5 in companies with turnover above £1,000m.

Respondents were asked what issues most concerned them in their role as NEDs. 59% of respondents cited low fee level/reward as being the main issue, with 36% saying that the level of responsibility, risk and personal liability was a major concern.

Jane Tozer, co-founder of ITNEA said: “Non-executive directors feel they are being dealt a pretty raw deal, especially when compared with executives. With the advent of initiatives such as Higgs, Turnbull, Smith and Sarbanes-Oxley, NEDs are undertaking an increasingly important and complex role in the boardroom, and the respondents clearly think that this increased input and personal risk is not being adequately reflected in their fees. Regrettably, some experienced individuals are saying that they no longer want to take on listed company roles.”

For the sample as a whole, the average number of days worked per annum was 30.3 days, compared with 29 days in 1999. For NEDs (not chairmen), time spent increased from 21 days in 1999 to 24 days today. The average NED’s time includes 10.1 days on board meetings, 4.4 in committee meetings, 8.2 on preparation (compared with 5 in 1999) and 3.4 on corporate governance (not separately identified in 1999).

David Tebbs co-founder of ITNEA added: “While NEDs are putting in more time, increased board and committee meetings, along with preparation and more corporate governance-related work, are crowding out the time NEDs spend on strategic input into the companies. While governance is important, given the speed with which technology companies need to react to changing markets, pressure on time for business strategy is a real concern.”

Ian Spence, IT sector analyst and director at Robert W Baird, added: “This situation should concern institutional shareholders in technology companies. Non-executives have a key role in high-growth sectors, providing crucial outside expertise to the Board. Shareholders may be surprised that NED fee rates have changed so little over six years. It is strongly in shareholders’ interest to encourage boards to be discerning, and to remunerate properly for the right NEDs who can really add value, and help significantly improve company performance over the long term.”

Chairman’s fees varied from a minimum of £12,000 to a maximum of £80,000, while non-executives’ fees range from £5,000 to £70,000. The survey shows a positive correlation between chairman’s fees and both company turnover and time spent. For non-executive directors, there is a correlation between fees and time, but only a weak correlation with company turnover, because most NED fees were within a very tight band irrespective of company size.

Other key findings include:

· 44% of fees are reviewed annually, much less than the 65% reported in 1999. 22% of fees are reviewed biannually, and 32% reviewed less frequently or never.

· Personal contacts were the source for 46% of NED appointments, head-hunters 19%, advisers 17% and others, such as advertising, VCs and investors, 27%.

· 33% of non-executives’ remuneration is set by some combination of the Chairman, the Chief Executive and the FD, 32% is set by the remuneration committee, and 35% set by the board as a whole.

ITNEA - Published Papers & Articles