Written by Elise Perraud
The topic of NED compensation is one that we often get asked. Questions primarily come from aspiring non-executive directors, recently appointed NEDs and organisations. Recently appointed NEDs and organisations are typically looking for a benchmark to ensure that the remuneration offered is competitive and in line with practices. For aspiring NEDs, finding out what compensation they can expect is part of their research into whether becoming a NED is aligned with their aspirations and financial needs. In this blog, we point our readers to some useful data.
Factors influencing NED compensation
There are a few factors that determine the level of remuneration of a NED:
- Company type
- Financial resources
- Time commitment (a couple of days per week, per month or per quarter?)
- Responsibilities including being a member of a sub-committee of the board, being the SID, the chair of the board or a sub-committee
Component of remuneration
Good corporate governance practices include protecting the independence of non-executive directors. As such, non-execs receive a director fee, paid in cash. Remuneration of NEDs may consist of equity, notably in companies scaling up and with limited financial resources, but this may be perceived as compromising their independence.
In its annual letter to its shareholders, published in February 2020, Warren Buffett expressed that he feels “better when directors of [his] portfolio companies have had the experience of purchasing shares with their savings, rather than simply having been the recipients of grants”.
Related post: Warren Buffett’s letter to shareholders 2020
Korn Ferry reported (2018/2019) that the median basic NED fee was:
- FTSE 100 £70k (lower quartile: £62.5k, upper quartile: £80k)
- FTSE 250 fee £52.8k (lower quartile: £49k, upper quartile: £60k)
- FTSE SmallCap £45k (lower quartile: £40k, upper quartile: £50k)
The BDO AIM Directors’ Remuneration (January 2020) report indicated that the median remuneration was £42.3k (first quartile: £33.7k, third quartile: £60k). Industry sectors which consistently pay NEDs at the higher end of the scale are financial services, technology & media, manufacturing & industrial markets and natural resources.
Public sector roles
What about public sector NED roles? The compensation varies between £400 to £1,000 per day, but some roles are unpaid.
Related post: Unlocking the public sector NED opportunity
Housing associations and NHS Trusts
In the social housing sector, non-executive director remuneration starts at around £3,000. Some roles, notably the role of the chair, may attract up to £30,000 per annum. NHS trustees are currently paid £6,157 (Current rates of remuneration payable to chairs and non-executive directors) but this will increase to £13,000 (Remuneration structure) in the coming years.
Trustee roles are typically voluntary or “expenses paid” only.
Start-up and high-growth businesses
Start-ups and scale-ups are more likely to offer shares as part of the compensation structure, because of their constrains on financial resources. This type of remuneration needs to be balanced against the requirement for NEDs to be independent.
SMEs and privately-owned businesses
This segment covers a wide range of situations and includes well-funded businesses as well as companies with tight financial resources. In the SME sector, remuneration typically starts at around £5,000 and some roles may be paid £50,000 per annum. Some well-funding and large privately-held businesses may compensate their non-executives at the same level as listed companies.
Want to know more?
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- If you are looking to transition to the board as a non-executive director, join us for our next free webinar, How to secure your first non-executive director role.
- If you are already committed to becoming a non-exec and want a roadmap to achieve this objective, visit the NED Accelerator Programme by NEDonBoard course page. We applied years of accumulated knowledge and worked with experienced NEDs and chairs to deliver practical and actionable content to support you in transitioning with confidence and success.