Show me the MONEY
It’s a difficult job but somebody has to do it. Ask any corporate secretary and they will tell you about longer work hours, greater responsibility and intense pressure. Regulatory compliance and corporate governance in general have grown in complexity immeasurably in the past few years. Filing and reporting requirements, and the legal responsibility that comes with them, have led to the corporate secretary role, and the roles of others involved in governance, becoming full-time, specialist positions with sometimes exhausting work duties. But no one does anything for nothing and few corporate secretaries are complaining.
In fact, many governance and compliance professionals couldn’t be happier despite the longer hours and greater pressure. The reason: corporate secretaries are among the highest paid executives in the country. This is according to a new survey conducted by the Society of Corporate Secretaries and Governance Professionals. The survey posed a broad range of questions relating to the responsibilities and compensation levels of its members. In addition to 42 other questions, the survey asked questions specifically for this magazine relating to job satisfaction and security.
It would appear that corporate secretaries are some of the most satisfied employees in America. Almost one fifth of respondents rate their overall job satisfaction as ‘extremely good’ while another 33 percent answered ‘good’. Like their UK counterparts, many corporate secretaries consider their role as ‘the job to have’. The role of the corporate secretary has gone from being an almost part-time position to a highly professional and well-respected job in the space of a few short years. ‘Companies have come to the realization that they need highly specialized and skilled personnel to deal with governance matters,’ says Douglas Chia, senior counsel and assistant corporate secretary at Johnson & Johnson. It used to be that the corporate secretary was a role performed by someone else in the company, like the general counsel, but this is no longer the case. ‘The position I am in didn’t really exist a few years ago,’ Chia continues. ‘Most companies have a team of people working in the corporate secretary and governance area. At Johnson & Johnson, we have two full-time lawyers (the secretary and assistant secretary) and four other assistants.’
Let’s talk turkey
But there are more tangible reasons why corporate secretaries are feeling good about their lot. Sure, most are working harder, but they are being handsomely rewarded. The Society of Corporate Secretaries and Governance Professionals survey shows an average base salary of $177,649. This figure is based on 536 responses from the Society membership.
This level of compensation stands up very well when compared to other corporate executives. According to the Department of Labor’s Bureau of Labor Statistics 2005 national occupational employment and wage estimates, the average salary for all corporate managers in the US was $88,450. Lawyers came in a little higher with a total average salary of $110,520. For the purposes of the survey, a lawyer is defined as someone who can ‘represent clients in criminal and civil litigation and other legal proceedings, draw up legal documents, and manage or advise clients on legal transactions. May specialize in a single area or may practice broadly in many areas of law.’
The average salary for all US employees in 2005 was $37,870.
Putting the boss to shame
But perhaps such broad comparisons paint a distorted figure and may be just a little unfair. The respondents to the Society survey also make more than many of the directors they serve. The increases in corporate board pay have been well documented in most areas of the media. A recent survey performed by Steven Hall & Partners, an independent executive compensation consulting specialist, shows board compensation at an all-time high.
Median total compensation for independent directors at the largest 500 US companies in 2005/2006 rose 14 percent from $162,363 to $185,000, according to the survey. Of course, this figure focuses on the largest companies whereas the corporate secretary numbers span the gamut in terms of market cap. When expanding the Steven Hall survey to the top 1,000 companies, average director compensation falls to between $160,021 to $175,250 depending on committee service.
Getting paid more than the directors to whom they provide information and counsel makes for an interesting dynamic, although directors are only part-time and often have considerable personal wealth outside their connection to the boards they sit on.
As with most senior executives and CEOs, a corporate secretary’s pay now features a significant performance-related element. The Society’s survey shows average additional compensation at $82,126. This includes cash and equity-based bonuses, profit share agreements and other performance awards.
Putting in performance measures
Dow Chemical assistant secretary and senior counsel Thomas Moran notes that he, like many of his peers at other companies, is a member of the company’s executive performance plan. ‘We have a cash-based performance program that is tied to company performance looking at metrics such as return on equity and cashflow. There is also personal performance criteria as well,’ he explains.
Approximately 63 percent of corporate secretaries say they are members of their company’s executive compensation plan. Measuring individual performance and marking it against peers’, both internal and at other companies, is difficult enough for highly visible employees like the CEO, but it is even more complicated for corporate secretaries and others in governance and compliance functions.
David Siddall, vice president, chief governance officer and corporate secretary of El Paso Corporation, is a participant in the executive compensation plan and explains some of the intricacies of the performance-based element of his compensation: ‘There are a number of elements that are evaluated in the measurement of my job performance. The more mechanical features include an assessment of timely and accurate filing of regulatory documents such as the 8K, 10K and 10Q. Compliance with other filing deadlines and legal requirements is another part.’ But this is only the beginning. It is the more subjective measurements that are perhaps the most interesting and important. ‘Part of the assessment involves being proactive on keeping executive management and directors informed. This involves everything from keeping them abreast of the latest regulatory challenges, the quality and speed-of-return of board meeting minutes, and keeping an eye on organizations such as ISS and Glass Lewis,’ says Siddall
El Paso also conducts a thorough in-house peer assessment as part of the performance evaluation. This typically involves seven to ten individuals at both senior and similar levels (to Siddall) providing feedback on how effectively they believe Siddall has performed his duties.
It is not an easy thing to quantify, but an increasing number of companies are implementing some level of subjective performance evaluation for members of the governance, compliance and legal teams.
With fame comes fortune
Secretaries seem to be happy with the increased focus on their function and performance. Moran, who has served in a number of capacities during his 17 years at Dow Chemical, feels people generally take the corporate secretary and other governance people more seriously now. ‘This is in large part a direct result of the increased focus on governance and compliance that came from the Sarbanes-Oxley Act,’ he explains.
‘Everyone, from the CEO, CFO, board members and other senior executives, looks to me and the secretariat team to keep them abreast of the latest rules and what the ratings agencies are saying. The board is very focused and concerned about governance and regulatory matters and it falls to us to make sure they get what they need.’ This is in addition to managing the disclosure process and ensuring that proxy rules and other legal issues are complied with.
‘Sure I am working harder,’ says Moran, ‘but I feel I am well compensated for my efforts.’ In general he believes the higher levels of pay are justified because of the extra responsibility. This is reflected in the number of people involved in the function at Dow. Not including the ethics and compliance team, which is considered separate, the team at Dow consists of a general counsel who is also the corporate secretary, Moran as assistant secretary and senior counsel, two paralegals and three senior non-legal assistants. This may seem like a large number of people, but the team is also responsible for all Dow’s corporate securities legal issues.
Siddall believes that both in his own role and for corporate secretaries at large, there is far greater visibility: ‘Having the designation of chief governance officer has certainly helped increase awareness and credibility of the role. Because the board pays more attention and relies on me for more information, I have been able, in some respects, to become more effective and efficient in getting certain initiatives put in place.’
The increase in visibility also carries over to other functions such as the ethics and compliance officers. In most companies these are now considered specialists roles whereas in the past they may have been part of other functions like HR.
With responsibility comes risk
As the role of the corporate secretary has become more central to the governance and compliance activities of a company, the risks facing individuals have increased as well. A lot has been made of increased liability facing directors or public companies, yet many of the same risks apply to the secretaries, governance, ethics and compliance officers.
The potential for things to go wrong at companies is evident. It is not unusual for bad things to happen at good companies and very often things happen that are outside the scope of the corporate secretary’s control. As Siddall explains, ‘There is some level of potential liability. I am one of the people responsible for CEO/CFO certifications. There is a possibility, albeit remote, that somewhere along the line, something could go wrong, possibly as a result of negligent or fraudulent activity. If I certify that information, or present it to the board for certification, and the document later ends up as part of an investigation, I hold an element of risk.’ It is for this reason that Siddall and many of his peers insist on some level of insurance and indemnity.
Moran agrees that the level of personal risk is high, although he feels it is mostly professional as opposed to criminal. ‘As the corporate secretary [or assistant], there is far greater opportunity to get things wrong. If filings are late, regulatory deadlines are missed or the board is not happy with the level of service it receives, they come knocking on your door almost immediately,’ he continues. ‘These are not people who are used to being kept waiting and they have little patience for failure.’ This adds to the pressure of the job but also makes it more rewarding, according to most people interviewed.
The job satisfaction element of the Society survey supports this idea. As was mentioned earlier, almost 51 percent of people rate their level of satisfaction as ‘good’ or ‘extremely good’. Interestingly, this compares to a 66 percent ‘good’ or ‘extremely good’ rating from UK companies secretaries (see ‘UK salaries on the fast track’, Corporate Secretary, October 2006). The difference may be due to the somewhat greater regulatory pressure faced by corporate secretaries in the US. Offsetting this is the fact that UK company secretaries are paid less on average than US peers, but not by much. The overall average in a recent survey from Company Secretarial Services ranged from $100,000 at smaller firms to $266,000 at the largest companies.
Security remains an issue
Despite the relatively high level of job satisfaction and growing respect from inside the company, many corporate secretaries hold significant anxieties about job security. Although most companies recognize the importance of skilled secretary and governance professionals, there remain limits to the breadth of job opportunities. The corporate secretariat function remains underfunded at many companies and two or three people often carry the load of many more.
Market consolidation poses considerable employment pressure as well.
As mergers-and-acquisitions activity returns to the highs of several years ago, there is growing concern about job security. When two governance and compliance teams join as the result of a merger it is inevitable that some people will be let go after the new entity hits its stride. There is rarely room for the combined teams.
As salaries increase and awareness of the job improves, there is also a greater number of people interested in becoming a corporate secretary. This will place pressure on some members of the community, particularly those who are not lawyers. Chia explains there used to be a lot more corporate secretaries without legal qualifications than exist today. As David Smith, president of the Society of Corporate Secretaries and Governance Professionals, discussed in a June interview, a corporate secretary requires considerable knowledge of corporate and securities law and it is for this reason that ‘the vast majority of corporate secretaries are either former lawyers or people with some form of legal qualification.’
Time is on my side
One surprising result of the Society survey was that almost 34 percent of respondents state that their need to work outside regular business hours has either stayed the same or decreased. This is counter to the general story, although it may mean that many secretaries are working smarter but utilizing technology or other tools to help them manage daily workflows.
There is little doubt that given the range of responsibilities faced by governance professionals and corporate secretaries few people would begrudge them their comparatively healthy level of compensation.
Sharing the wealth
But it is not just corporate secretaries who are making a good living. A recent study from the Ethics and Compliance Officer Association (ECOA) shows its members also receive above-average levels of compensation. The 2006 survey examines 14 job titles spanning the ethics and compliance function and received participation from 139 organizations. Of those, 24 businesses report revenue exceeding $20 billion and 32 report having more than 35,000 employees.
Like the corporate secretary data, the ECOA report shows salaries at the top end of the profession continue to grow at a considerable pace. Compensation for top global ethics and compliance officers is up 12 percent on the 2005 figures.
The head of a global ethics and compliance team receives, on average, a salary of $206,000 and long-term incentive payments totaling $132,100. Like their corporate secretary peers, many ethics executives also receive performance-based compensation including such instruments as stock options, non-qualified options and restricted stock.
Keith Darcy, executive director of the ECOA, remarks in a press release announcing the survey results: ‘Organizations are increasingly recognizing the importance of their ethics and compliance office, not just in times of crisis, but as an integral part of day-to-day business. As a result, in addition to increasing compensation, organizations are encouraging their ethics and compliance employees to continually develop their skills through on-going training and education programs. Never before have organizations seen the value in the work of the ethics and compliance officer as they do now.’
The significant growth in salaries and indeed the considerably above-average payments appear, however, to be restricted to those at the top of the profession. A comparison of last year’s survey results shows several interesting trends: average total cash has increased for the top ethics and compliance executive, global as well as for the business-unit manager, ethics and compliance; compensation for several lower-level positions, on the other hand, has decreased significantly.
According to the survey summary, these trends may indicate that the ethics and compliance field is maturing, with a labor supply that is growing to meet the demand for lower-level positions. As is typical with executives in other fields, however, competition for select top positions remains intense.
This theory is supported by an informal estimate recently performed by one ethics consulting professional that the ethics and compliance field now employs a total of 250,000 people in the US alone.
The advancement of compliance and governance as a profession and of corporate secretaries and compliance officers as job functions is also reflected in the growth of professional associations serving these groups. In the past few years, we have witnessed the formation of the ECOA along with the Society of Corporate Compliance and Ethics, which now has in excess of 500
members, and the Open Compliance and Ethics Group. There are rumors of at least one or two more associations being formed to serve this expanding job function.
As investors and regulators become even more focused on compliance and governance activity, and demand greater transparency and access to corporate information, it is likely that the role of the corporate secretary, governance, ethics and compliance officer will continue to become more of a focal point. Thus, as companies vie to be viewed as leaders in ethical governance, don’t be surprised to see even more salary increases at the highest level of the profession.