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Extraordinary Circumstances: What to ...

Extraordinary Circumstances: What to Pay Special Committees

Too often, the question that no one can answer when establishing a special committee is what to pay the members of the committee. Some boards look at examples of special committee fees paid by other organizations — even though the mandates of those committees may vary widely — while others make special committee fee decisions qualitatively and intuitively.

One of the ways we address this gap when advising special committees is by leveraging quantitative research and answering the first question most directors ask: “What are our competitors doing?” By combining an analysis of quantitative data with our decades of experience in boardrooms, we are able to create special committee fee guidelines that reward directors for their extraordinary efforts while remaining accountable to the company and its shareholders.

Our Approach

To develop this quantitative insight, we reviewed fees paid to over 60 special committees established over a period beginning in 2015 and confirmed that there is no generally accepted methodology for setting special committee fees. We also found that disclosures surrounding special committees are many and varied, with some companies disclosing fees in aggregate and others providing a breakdown of committee retainers and meeting fees. Many issuers did not disclose the duration of the committee’s mandate, and – while some companies did disclose the number of times the special committee met – we don’t know whether these meetings represented one-hour phone calls or whole-day sessions.

We specifically analyzed the fees paid to 35 special committees1 for which there was sufficient disclosure for analysis. The mandates of these special committees varied. Eleven were established in response to a potential M&A transaction and another fourteen addressed other strategic initiatives. Two of the special committees dealt with succession issues, three dealt with legal, government or regulatory matters, two dealt with shareholder activism or engagement and three companies did not disclose the special committee’s mandate.

Key Findings

We expected that special committee fees would be closely related to the fees paid to the standing committees of the board. This was not the case. While the median company within our study paid their special committee the same amount as they did their standing committees2, there was substantial variation in practices. Two companies did not pay their special committees, although these boards did pay their standing committees. At the other extreme, four companies paid their special committees more than seven times what they paid their standing committees. In some of these examples, the high fees were not unfounded based on the extraordinary amount of work undertaken by the special committee. For example, the board of Amaya Inc. (now The Stars Group Inc.) struck a special committee in 2016 to consider the CEO’s proposal to acquire the company. This special committee met 86 times (in addition to the 32 meetings of the full board). Members of the special committee were paid approximately $219,000 (including retainer and per meeting fees) which equates to about $2,500 per special committee meeting held.

Surprisingly, we found no evidence of a relationship between the quantum of special committee fees and the market capitalization of the company – in other words, larger companies do not necessarily pay higher (or lower) special committee fees.

Our Practice

Using this quantitative analysis, and combined with our extensive experience advising special committees, we have developed guidelines and benchmarks for special committee remuneration. We look forward to putting these insights to work for our clients.

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1 Includes 35 special committees established by TSX-listed companies with a market capitalization of at least $100 million which provided sufficient disclosure regarding those special committees (including fees, number of meetings held, and other details).

2 Excluding the audit committee, where service typically garners higher pay than on other board committees.

Note: all dollar values are expressed in Canadian dollars and have been converted where necessary.