Introduction – The Director Fee Illusion
Heading into the last cycle of my directorships, I know that the risk landscape is changing for directors. This is a commentary on how I see one potential future for Boards and Directors.
Boards now operate within environments shaped by what at times can feel like overwhelming risk profiles. Yet remuneration methodologies often continue to rely on benchmarking systems that inadequately capture contemporary risk exposure. The result is predictable – some boards struggle to attract exceptional directors while others attract individuals who are highly governance-process-literate but commercially disconnected. and want a Board role on their resumé.
The outcome is a market that frequently under-prices real governance capability & over-values procedural governance activity.
What follows is a potential contemporary framework for evaluating governance risk & remuneration that posits a closer alignment between risk & reward, & is tied to a holistic assessment of director risk exposure.
The Expanding Liability Landscape
Historically, directorship was viewed as a prestigious governance role involving periodic oversight & strategic guidance. While directors always carried fiduciary duties & legal obligations, the practical risk environment was relatively contained.
That environment no longer exists. Today, directors operate within an increasingly unforgiving accountability ecosystem. Directors can now face personal liability arising from:
Health & safety failures – Environmental incidents – Cybersecurity breaches – Privacy & data governance failures – Financial reporting inaccuracies – Insolvency events – Regulatory investigations – Employment-related claims – Competition law breaches – Climate-related disclosures – Reputational crises amplified through social media – Artificial intelligence governance failures
Importantly, many of these risks originate in areas where directors are not operational decision-makers yet remain accountable for governance oversight. The modern director therefore occupies a unique position. They are expected to exercise influence without direct control while simultaneously accepting liability for failures that may occur deep within complex organisational systems. This asymmetry represents one of the defining governance challenges & one that will continue to shape the board room.
Hows the landscape changing? Here’s one example. The New Zealand Government’s Cyber Security Strategy 2026-2030 and its accompanying Action Plan have put a civil penalty regime firmly on the table. The Ministry of Justice is actively scoping options to introduce meaningful financial penalties for organisations that fail to protect personal information. The paper also proposes critical infrastructure operators could also face mandatory cyber security obligations with personal criminal liability for directors. What is being considered is a criminal penalty of $5m or 2% of annual turn over AND criminal penalty of $500K for the director. The signal from government is clear they are moving from good intentions to demonstrable control & from complaints to consequences.
The Director Fee Paradox
The increase in director liability has not been matched by a corresponding increase in remuneration sophistication.
A director serving on the board of a highly digitised infrastructure provider, healthcare organisation, financial institution, water utility, or technology company may face significantly greater liability exposure than a director serving an organisation of similar size in a less regulated sector.
Yet fee differentials frequently remain modest. This creates a governance pricing anomaly. The market often prices organisational scale more effectively than it prices governance risk.
As a result, directors may receive remuneration that reflects the size of the organisation they govern rather than the complexity & personal exposure associated with governing it.
The Limits of Benchmarking
Benchmarking remains the dominant mechanism used by remuneration consultants & boards when setting director fees. It provides several advantages – simplicity, market comparability, transparency & ease of explanation to shareholders
However, it also introduces structural limitations. By its nature, it’s backward-looking. It reflects what organisations have historically paid rather than what directors may need to be paid in the future to reflect emerging risks & to attract the right talent.
Some current observations are relevant in this regard, particularly with the new risk landscape:
Cyber Risk – Directors may be personally scrutinised following a major cybersecurity incident despite having limited technical expertise.
Artificial Intelligence – Boards are increasingly expected to oversee AI deployment, ethics, bias management, & regulatory compliance.
Climate Risk – Climate-related reporting obligations continue to expand, exposing directors to heightened scrutiny & potential liability.
Infrastructure Risk – Directors governing critical infrastructure entities & lifeline utilities face increasing obligations regarding resilience, continuity, safety, & public accountability.
Traditional benchmarking methodologies often struggle to adequately capture these emerging risk categories. Consequently, director fees lag behind actual governance exposure.
The Insurance Fallacy
Many organisations implicitly assume that Directors & Officers (D&O) insurance resolves the issue of liability.
The assumption is flawed.
Insurance provides protection against certain financial consequences but cannot eliminate reputational damage, regulatory investigation, professional embarrassment, time commitments, stress & personal burden, & career impacts
Furthermore, policy exclusions continue to evolve, & insurers are increasingly attentive to governance quality, cyber exposure, & organisational risk profiles. Insurance therefore transfers only a portion of the risk. It does not eliminate accountability. Nor does it compensate directors for the growing complexity of governance itself.
The notion that insurance can fully offset governance risk has become one of the more persistent myths in board remuneration discussions.
Towards a Governance Risk Pricing Model
A more contemporary approach to director remuneration would incorporate explicit risk pricing. Such a model could assess directors against the dimensions above with the addition of:
Regulatory Exposure – The scale & complexity of regulatory obligations.
Personal Liability – Potential legal & financial consequences for directors.
Public Visibility – Likelihood of stakeholder, media, or political scrutiny.
Criticality of Services – Importance of organisational services to communities & economies.
Technology Dependence – Reliance on digital platforms, data, cybersecurity, & AI.
Business Transformation – Magnitude of organisational change underway.
Stakeholder Complexity – Diversity & influence of stakeholder groups.
Time Intensity – Actual effort required beyond formal board meetings.
Rather than relying solely on organisational size, remuneration could better reflect the multidimensional risk environment directors are expected to navigate.
Is Governance Underpriced?
A growing body of evidence suggests that governance may indeed be underpriced. This does not imply that all directors should receive substantially higher fees. Rather, it suggests that remuneration frameworks have not kept pace with the changing nature of governance risk.
The consequence is a widening gap between accountability & remuneration, liability & reward & expectations & compensation. Over time, this gap may produce unintended consequences.
High-calibre directors are becoming increasingly selective regarding appointments & critical sectors may struggle to attract specialist governance expertise. Appointments are still made but those appointees often don’t know what they’re in for. But at least it looks good on the resumé.
Risk-intensive organisations may find themselves competing for governance talent using remuneration structures designed for a different era. Ultimately, the market risks creating a situation where the individuals most capable of governing complex organisations perceive the risk-adjusted return of directorship as insufficient & will simply self-select out of the market.
A New Director Remuneration Model
The future model should contain four distinct components.
Component 1: Governance Base Fee
This compensates for expected governance workload & can be calculated using Board meetings, committee meetings, preparation time, site visits & other regular activity.
This remains largely unchanged.
Component 2: Governance Risk Premium
This is one of the missing components. Directors should receive an explicit risk premium based on the organisation’s risk profile. Suggested risk factors might be:
Risk Dimension Weight
H&S Exposure 15%
Cyber 15%
Regulatory complexity 15%
Public scrutiny 10%
Infrastructure criticality 15%
AI & data governance 10%
Financial complexity 10%
Environmental liability 10%
A risk score is calculated. Low Risk – +0%. Moderate Risk – +25%. High Risk – +50%. Critical Risk – +75%-125%
A water utility, airport, energy company, healthcare provider or major financial institution would typically fall into the high or critical category.
Component 3: Strategic Transformation Premium
Many boards are now overseeing transformational changes. For example, AI deployment, water & other infrastructure reform, digital transformation, complex M&A activity & large ERP implementations
These can dramatically increase workload & liability. So you might load a premium of 20%-50% of base fee for the duration of the programme & then reduce fees once the programme has reached steady-state.
This recognises that governance during transformation is fundamentally different from governance during steady-state operations.
Component 4: Long-Term Governance Value Incentive
This is the controversial element. Most directors are paid almost entirely for attendance & oversight. They receive little reward for creating enduring organisational value.
A portion of remuneration should be linked to five-year performance, asset stewardship, customer outcomes, organisational resilience, risk maturity & delivery. For listed entities this may involve equity. For public entities it could involve deferred governance payments linked to long-term performance indicators.
Example: A high-risk, mission-critical infrastructure organisation undergoing significant change
Current Typical Model
Director Fee: $45,000-$60,000
Committee Chair: $15,000
Board Chair: $80,000-$120,000
A Proposed Model
Base Governance Fee: $60,000
Risk Premium (+75%): $45,000
Transformation Premium: $20,000
Total Director Fee: $125,000
Committee Chair: +$25,000
Board Chair Multiplier (2.5×): $312,500
This may initially appear high.
However the board is overseeing public good, infrastructure resilience, climate adaptation, cybersecurity, regulatory compliance, & multi-billion-dollar assets
The question should not be: “Why are director fees so high?” The more relevant question is:
“Why have we been pricing this level of risk and accountability so cheaply?”
