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 2008 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
"REST’s board has hardly changed since its 1988 inception, yet all of its directors are volunteers. 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."
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.