Trustee remuneration – Should you be paying more? PwC

PricewaterhouseCoopers (PwC) recently completed the Southern African Financial Services Journal 2009. This annual publication is designed to deliver insights into strategic, operational and technical issues facing the financial services industry today.

One of the sections covered in this detailed report is related to Trustees’ remuneration in the retirement fund industry. The report aims to answer the question of whether or not to remunerate trustees for their services and if so, how much is appropriate?

Gert Kapp, Retirement Fund Leader for PwC says, “The significant increase in the volume of legislation, regulation and economic pressures has amplified the workload and responsibilities of trustees. In addition, the intense skills shortage in South Africa combined with the dwindling number of adequately qualified independent trustees may call for remuneration adjustments in an attempt to retain trustees.”

Current justification for trustee remuneration

In the event that a fund is providing remuneration to their trustees, most boards justify their decision to pay them based on the following arguments. Participating employers usually want to compensate trustees for doing something important and for accepting additional responsibilities over and above their normal workload. On the other hand, trustees are becoming more demanding especially when faced with challenging circumstances and risks. In addition to this, retirement funds need to recruit and retain trustees as well as acquire specialised expertise to benefit the performance of the fund, and live up to member expectations.

How should levels of remuneration be determined?

The PwC journal highlights factors that need to be considered when assessing the level of remuneration to be paid to the trustees:

· Workload and availability;

· Reputation in the industry;

· Level of independence;

· Level of trustee experience;

· Size and performance of the fund;

· Performance of the individual;

· Perceived market rate; and

· Additional skills, knowledge and qualifications.

Kapp continues, “Trustees should be remunerated for the time and effort expended in the performance of their duties on behalf of the fund members. The fund should at least meet the expenses incurred by independent trustees in the fulfilment of their duties.”

Increased personal risks associated with the job

The Pension Funds Act is constantly updated year to year, along with other legislation applicable to retirement funds. Potential legal liabilities for trustees are also on the increase and this has had an impact on the level of fidelity cover being held by trustees.

Even though reasonable remuneration is not defined by the Act, what is deemed to be reasonable remuneration, in any particular situation, is based on the relevant facts and circumstances.

Kapp concludes, “Perhaps funds should start increasing the payments to trustees to ensure that their role is taken more seriously and that more people aspire to becoming skilled trustees in an attempt to eliminate the current brain drain.”