Fees for Audit Committee Chairs of Canadian Companies Have Doubled in Past Five Years, According to the 2005 Canadian Spencer Stuart Board Index

Toronto, January 09, 2006 — Today, 70 of 100 leading Canadian companies provide the audit committee chair an additional retainer averaging 100% above the retainer paid to chairs of other committees, according to this year’s Canadian Spencer Stuart Board Index (CSSBI) that was released today. This average annual retainer, which is paid in addition to other director fees, increased in 2005 by 10% to $17,436 — double the average audit committee chair retainer five years ago.

“Compensation has grown significantly as the role of the audit committee has become more visible and demanding. Audit chairs are juggling a myriad of new requirements and responsibilities amid heightened regulatory and shareholder pressure,” says Andrew MacDougall, who leads Spencer Stuart’s Board Services Practice in Canada.

Adds Robert Nadeau, who leads Spencer Stuart’s Board Services Practice in Montréal, “Even with higher pay, it is more difficult to recruit audit committee chairs as the most qualified are limiting new appointments and being highly selective in the boards and committees they ultimately join.”

The 10th annual Canadian Spencer Stuart Board Index, published by global senior-level executive recruiting firm Spencer Stuart, features an analysis of the board composition and processes of 100 publicly traded Canadian companies with revenues exceeding $1 billion (the “CSSBI 100”). The index also compares Canadian data to that of comparable U.S. companies, which was gathered for the Spencer Stuart Board Index in the United States.

Other noteworthy findings of the Canadian Spencer Stuart Board Index include:

Board Compensation

• More moderate increase in directors’ compensation: The average total compensation for CSSBI 100 directors is up 9% to $79,226, while annual retainers increased 5% to $41,838. Historically, directors’ total compensation increased much more year-to-year: 26% in 2004 and 17% in 2003 (annual retainers increased 33% in 2004 and 19% in 2003).
• Canadian retainers have grown at a faster rate than at comparable U.S. boards: The five year compound annual growth rate of average annual director retainers is 11.6% for CSSBI 100 companies but 8.7% for comparable U.S. firms.
• Flat fees a common way to compensate board chairs: Nearly two-thirds (61%) of CSSBI 100 companies pay their chairs an all-inclusive flat fee, averaging $269,417.
• Only small increase in board chair total compensation: Average board chair total compensation for the CSSBI 100 is $240,253, a modest increase of 3% over last year.
• Use of stock options for directors continues to decline more rapidly in Canada than in the U.S.: Only 26 of the CSSBI 100 boards grant stock options to directors, a decrease of 25% from last year. Conversely, more than half (58%) of boards of comparable U.S. companies still offer options to their directors, a decrease of only 7% since last year.

Board Diversity

• Presence of women on Canadian boards declines, and continues to trail the U.S.: After having caught up to the U.S. in 2004 in annual growth in the representation of women directors, Canadian boards fell even further behind in female representation on boards in 2005; women now represent 12.4% of all CSSBI 100 directors in Canada versus 14.5% for comparable companies in the U.S.
• Few women hold chair roles on Canadian boards: Only one CSSBI 100 board has a female board chair and, excluding environment, health & safety committees, women hold only 7% of all other committee chairs in Canada.
• International presence on boards increasing: There was a 7% increase in the number of international directors on CSSBI 100 boards. International directors now represent 21% of all directors. The majority (74%) of international directors are from the U.S.
• Canadian boards have few directors from visible ethnic minority group: Only 44% of surveyed companies have at least one director from a visible ethnic minority group on their board, and only 5% added a minority director to the board in the past year.

Other Findings

• Unlike in the U.S., the majority of Canadian boards split the roles of chair and CEO: Over the past five years, there has been a 24% increase in the number of CSSBI 100 boards that split the roles of chair and CEO. Today, 80% of CSSBI 100 boards split the roles of chair and CEO, whereas in the U.S., less than one-third (31%) of comparable boards split these roles.
• Number of independent board chairs increasing, but overall director independence not increasing: The majority (55%) of CSSBI 100 board chairs is independent, an increase of 4% over last year. Surprisingly, the proportion of independent directors on CSSBI 100 boards remained unchanged at 77%.
• Boards of larger companies hold more meetings: On average, larger CSSBI 100 boards (revenues exceeding $5 billion) hold two more meetings annually than the smaller ones (10.3 versus 8.5).
• Disclosure of director attendance at meetings continues to improve: 92% of CSSBI 100 companies published the record of director attendance at meetings in 2005, a 12% increase over last year.
• Boards are playing catch-up to meet new CSA governance regulations: Whereas almost all CSSBI 100 boards are in full compliance with the former TSX regulations, only 42% of these boards comply fully with the new Canadian Securities Administrators governance guidelines which came into effect June 30, 2005.
• A large number of Canadian companies are attempting to comply with SEC rules and regulations whether required to or not: 48% of surveyed companies are required to comply with SEC rules, but 83% are targeting for some level of compliance.
• Insurance premiums for directors and officers on the rise: Annual Directors & Officers Insurance premiums for CSSBI 100 companies increased by 26% over last year, to an average of $1,613,361 a year.

The complete Canadian Spencer Stuart Board Index is available on the firm’s web site: http://www.spencerstuart.com/research/boards/946/.

For the past 10 years, Spencer Stuart has published the Canadian Spencer Stuart Board Index, offering valuable insights into corporate governance trends and best practices of leading Canadian companies. As the premier firm for board counsel and recruitment, Spencer Stuart also annually publishes the Spencer Stuart Board Index in the United States, a study of corporate governance of S&P 500 corporations, as well as regional and industry-specific board studies.

About Spencer Stuart
Spencer Stuart is the foremost privately held, global executive search firm, spanning over 50 offices in 25 countries. For 50 years, Spencer Stuart has been providing select clients with a range of human capital solutions, including senior-level executive search, board director appointments and strategic leadership services. In 1978, Spencer Stuart was the first global executive search firm to enter the Canadian market. The firm conducts nearly 4,000 assignments each year, partnering effectively with clients ranging from the Fortune and Financial Post 500, to mid-cap, to emerging growth companies across a broad range of industries and functions.

Press Contacts