Canadian corporate directors commanding higher fees.

Total compensation for Canada's corporate directors increased 32% between 2001 and 2003, according to a new study of the proxy disclosure of companies in the S & P/TSX Composite, conducted by Mercer Human Resource Consulting in association with the Institute of Corporate Directors (ICD).

Total compensation for board chairs and committee chairs within TSX 100 companies is also up. Median total compensation for non-executive board chairs was $213,924 in 2003, up 9% from 2002 and committee chairs received an average of $79,135, up 22% from 2002. Compensation is expected to increase by at least a further 7% for both positions in 2004 based on plans disclosed to date.

"Rapid change in corporate governance practices and regulations means corporate directors face greater risks, are required to be better equipped, and to be much more involved in the oversight of corporate affairs. As a result, directors are commanding higher fees and will continue to do so for the foreseeable future," said John Hammond, senior compensation consultant at Mercer Human Resource Consulting and author of the study.

"Serving as a corporate director requires specialized skills and a much greater time commitment than it did only a very few years ago," said Beverly Topping, president and CEO of the ICD. "The role of director is increasingly regarded as a real profession with legitimate fiduciary and value-adding roles. Public companies are looking for their directors to bring increasingly specialized skill sets and remain current on issues in the rapidly changing business environment."

Director compensation increases in Canada outpace the United States significantly. While absolute pay levels for U.S. directors remain considerably higher--a median total of US$129,712 for directors in 2003--the increase over 2002 is less than 1%. The more dramatic increase in Canada may be a sign that companies are trying to close the compensation gap to attract directors from the U.S. and other countries.

Mercer also observed that the use of stock options is declining in Canada in favour of deferred share unit (DSU) plans and that the trend is more pronounced in Canada than in the U.S., as Canadian institutional investors and other corporate governance advocates have been much more vocal on the issue. Based on 2004 disclosure, Mercer anticipates less than 17% of TSX 100 companies will grant options to directors in 2004, down from 47% in 2002 and 26% in 2003. At least 76% have or plan to introduce DSU plans for directors in 2004, up from 61% in 2002 and 70% in 2003.

Companies are also recognizing the increased workload associated with being a director by offering differentiated rates for committee service. For example, 39% of TSX 100 companies reported using differentiated fees in 2003 for the audit committee chair, up from 17% in 2002. While less common, 7% of TSX 100 companies also reported paying a higher retainer to the compensation committee chair in 2003, up from 4% in 2002. Companies are also reconsidering the fee-per-meeting model. In 2003, 14 TSX 100 companies adopted a flat-fee approach.

For a copy of the study visit www.mercerhr.com/referencecontent.jhtml?idContent=1156555.

For more information about Mercer and the ICD visit www.mercerHR.com and www.icd.ca.