At a time when boards across Australia  have come under increasing pressure to  review the high sums paid to top executives,  the cover story in the October edition  of Investment & Technology found a  number of people arguing that the pay of  executives in superannuation could probably  be increased.

This month, we examine  the great disparities in how the boards  themselves are remunerated. For instance,  at the $23 billion industry fund UniSuper,  more than one director is paid a six-figure  salary. Meanwhile, at the $13 billion retail  fund REST Super, all board members  are volunteers. STEPHEN SHORE  investigates what super trustees are paid  and why. 
Over twenty years ago, when unions 
first won the right to set up industry 
funds to provide for people’s retirement,  the goal was to maximise workers’  retirement savings.

In keeping with the  idea of “all profits for members”, most  board directors began as volunteers.  While all industry funds say that  they have never deviated from this  founding principle, over the past two  decades some funds have evolved to  the point where the position of trustee  could be described as lucrative.  The first trustees to be ‘paid’ were  employer representatives, who came  onto boards in about 1986. Employers  realised that rather than continuing  to fight against compulsory super,  it would be better to secure an equal  representation on industry fund boards  to balance the influence of the unions. 

Some companies made allowances for  executives to attend board meetings  during business hours, and some funds  compensated the companies for the  time the board kept executives away  from work. 
“During the 1980s a quarterly  meeting
was not seen as particularly  onerous,”
says Howard Rosario, chief  executive at
Westscheme. “Most board  members were
volunteers, or paid very  little.” 

As the funds grew and super  contributions became legislated, the role  of the trustee became more complex.  More time was required of trustees,  and super funds began to realise that  people needed to be paid for the work  that they did. In addition to attending  board meetings, trustees were expected  to keep up to date on complex financial,  statutory and compliance developments. 

Fiona Reynolds, chief executive at  the Australian Institute of Superannuation  Trustees, says that by the time of  the Superannuation Industry Supervision  legislation and the creation of  the Australian Prudential Regulation  Authority in the early 1990s, board  members of super funds had to be  skilled and commit to the role in a way  that a director of any other business  would. 
In the past five years, several funds 
have become large and complex, with 
some even running their own internal 
investment teams.

The boards of these 
funds required a new level of expertise 
again, and brought on independent 
directors such as Bernie Fraser, former 
governor of the Reserve Bank (AustralianSuper,  Cbus), and Chris Cuffe,  former chief executive at Colonial First  State (UniSuper). A 2008 APRA  survey found that these days the highest  priority for most trustee boards is “ensuring  compliance with legislation and  regulation”, which takes an average of 23  per cent of the boards’ total time.  “The super industry has changed,”  says Fiona Reynolds, chief executive at  the Australian Institute of Superannuation  Trustees.

“Funds are getting to over  $10 billion, in some cases up to $30  billion, and some are realising that they  need to look externally for expertise.”  The aforementioned APRA survey,  Superannuation fund governance: Trustee  polices and practices, published in May  2008, looked at the boards of 187 of the  major superannuation funds, representing  about 85 per cent of the nation’s  pension assets. It found that on average,  super funds have seven directors.

Each  fund holds an average of 8.1 board  meetings per year, with each board  meeting having a mean duration of 3.6  hours. The meetings are supplemented  on average by 12.8 sub-committee  meetings per year, which lead to each  trustee director spending on average  98.8 hours per year on fund matters  outside board meetings.  McGuirk Management Consultants  is a firm that advises super funds on  what might be an appropriate level of  compensation for all this work. Its
principal,  Terry McGuirk, says that most
of  the differences in levels of
remuneration  can be generally explained
by fund size,  and what comparable
organisations are  paying in the private
sector. 

According to MMC’s 20 Fund  Executive, Staff & Trustee Remuneration  Survey, the average trustee chair receives  a salary of $52,969, while the average  trustee director gets $28,794. APRA  does not distinguish between chairs and  directors in its survey, but estimates the  average trustee salary is about $38,000.  Slightly below average is the Seafarers  Retirement Fund (SRF), whose  board members were volunteers until  July 1, 2007. Chief executive Peter  Robertson says that the demands on  the board have been growing with the  increasing complexity of the industry, so  the fund decided to pay the employee  sponsors of their directors for the time  away from work.

SRF pays the employer  of each director of its eight-person  board $30,000, and the chair $40,000,  regardless of the price the company they  work for may place on their time.  The top 10th percentile of funds  with more than 200,000 members have  a median director salary of $86,303.  The board members at UniSuper would  be among the most well remunerated,  with one (most likely the chair) receiving  between $140,000 and $179,000,  and another between $110,000 and  $139,999 in 2008. The other 10 directors  have a range of salaries from between  $90,000 and $99,000, to between  $20,000 and $29,000. 

The McGuirk figures are taken  from a survey of 57 industry funds, 30  corporate funds, 14 public sector funds  and one corporate master trust. The  public sector is the most generous, paying  chairs an average $61,473 and directors  an average $32,853. It is followed  by the industry funds, which pay chairs  $52,316 and directors $28,761. Last are  the corporate funds, which allow chairs  $48,564, and directors, $24,678.  But of these funds, six industry,  17 corporate, one public sector fund  and the master trust do not pay their   trustees at all.

APRA found that some  54 per cent of directors were either not  paid by the board or did not declare  their pay. 
One such fund is the $14 billion  Retail
Employees Super Trust (REST),  whose
board hardly seems to have  changed since
its inception in 1988. Joe  De Bruyn, an
employee representative  appointed by the
Shop, Distributive  and Allied Employees
Association, has  been a board member
since the beginning.  Rohan Jeffs, an
employer representative  appointed by
Woolworths, has  been on the board since
1990.

Both are  volunteers.  A spokesperson from REST said its  board members firmly believe in the old  adage ‘profit for the member’ and that  taking salaries would ultimately lead to  a lower return for members. Damian  Hill, chief executive officer at REST  was unavailable for comment, but one  assumes he would say that REST is  able to provide a well governed fund  that has consistently good returns without  paying high trustee remuneration.  “It’s an argument that they make  very well,” says Rosario. “But the challenge  for other funds is that most of us  have to bargain in the skill matrix. And  there are serious liabilities for getting it  wrong.

REST have been very fortunate.”  Westscheme pays its chairman  $114,490, and each director $54,956.  Its committee members also receive a  sitting fee of $1,284. Each board member  is paid directly and is responsible  for making arrangements with their  employer if Westscheme obligations  clash with business hours. “We wanted  to pay our board members directly so  that there is no confusion that they  work for Westscheme, and that we are  a top priority,” Rosario says. “Also as the  original board began to consider retirement  from the workforce, we needed to  figure out a way to keep them engaged  as board members, so we started to  remunerate directly.” 

Westscheme discloses the remuneration  of its directors in its annual  reports as far back as 1995, in which  it is revealed that its two independent  directors at the time were paid $10,500,  in addition to a superannuation contribution  of $1,050. “We realised long ago  that people needed to be paid for the  work that they do,” Rosario says. “And  as the industry became more complex,  experience on the board needed to  extend beyond the layman.” 

Despite this demand for knowledgeable  boards, the APRA survey  found that more than 90 per cent of  funds do not explicitly require their  directors to have formal education  qualifications for the role of a trustee,  and most (81 per cent) do not require  the directors to have superannuation or  investment experience. However, 68 per  cent of the funds do require directors  to have some formal trustee training. In  spite of board requirements, 65 per cent  of directors have university degrees and  only 11 per cent of directors have no  tertiary qualifications. 

In most cases (91 per cent) boards  also have no requirements around the  number of simultaneous directorships  trustees can hold (the average is 3.5).  Nor is there a limit to the number of  years a director can serve on the board  (current directors have served an average  5.3 years). 
While industry bodies are increasing 
the regulation and governance  requirements
of boards, there remains  little
consistency between the funds  in how
they are selected, and for the  foreseeable
future it seems, in how they  are
remunerated. 

 

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