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Gyro
12-12-2012, 06:42 PM
Hi There

One of the Senior Managers has recently entered into discussions with the Managing Director about buying in to the company and becoming a Director. They were initially employed 15 months ago on a reasonably high salary given their yrs of experience, client base and reputation within the industry. Now that the MD has started negotiations it has been made clear to me that the Snr Manager may very well need to take a salary cut to be more on par with the other Directors and has been seeking my advice on how to approach this. My concerns are that this individual has a lot more industry experience, knowledge, credentials and ability than the others so a higher salary is justifiable in this instance

Anyway my query is I cannot seem to get hold of any good Remuneration data on Directors I have plently on Non-Executive Directors and have not been involved in the packaging of a Directors salary in the past as the previous MD protected all that information. Does anyone have any guidance on where i might be able to get some good advice and market information? Location is Perth based with regional land/ civil development work in Karratha/ Port Headland and Broome.

without any good data I am unable to confidently provide guidance and advice on this one.

Moz
13-12-2012, 08:53 AM
Remuneration packages for executive directors who are also shareholders can vary enormously so there is not going to be any reliable benchmark data. There are just too many variables.

Assuming this is a private company, here are example of some of the variables;

What class are the shares and what other share classes exist? (voting rights?)
How much are they paying for the shares?
What is the value of the company?
How profitable is the company?
What percentage of the total shares issued does the individual hold?
What clauses are in the shareholder agreement in terms of selling shares and unforseeable events (such as other shareholders dying)?
How often does the company issue dividends to shareholders? (and to what degree are they normally franked)
What is the company's growth stage and future plans? (is the company being built up to be sold?)

These questions relate to the value of being a shareholder and a how much control you have as a director.

Then of course there's the role and contribution of the individual compared to other directors. Some directors are worth a lot more to the company than others!

If the person is expected to take a pay cut, then the value and/or the potential value of their shareholding needs to more than compensate for that, because they are taking a risk on the performance of the company as a whole.

I hope this helps :)

Gyro
13-12-2012, 10:48 AM
Thanks Moz

Very helpful :-) I was having trouble quantifying what the pay cut against means against what the risk of becoming a director is worth. It is a private consulting company with an annual revenue of over $10m... this individual alone was responsible for doubling the annual revenue of the Civil division in just 7 months of being with the company. It was identified very early on that Directorship was the best option to ensure we not only retain this individual but they get some of the benefits of being such a good project leader and business development person.

The MD has since resognised that a pay cut for this individual is not neccessarily the best option and we now have to look at the skill levels and packages for all current directors

I'm just trying to get some market data at the moment, as you say the packages can vary dramatically.

thanks again for your help :-)

Tasman McManis
13-12-2012, 12:48 PM
Hi Gyro, while I understand the points that Moz raises I think you can get data that will help you set a suitable remuneration for the Director. There is plenty of executive information around and there are specific surveys that cover executive rem in consulting organisations. There is also plenty of director data around but it is unusual to pay an executive director a package based on the salary of 2 positions. There a couple of options you could consider. Set the executive salary level and pay a directors fee if you feel there is a need to pay an additional fee. Alternatively set the executive salary and put in place an incentive based on this person's ability to get better additional business as they seem to be critical to the business' growth. Cheers Tasman