Non-Executive Directors’ (NED) pay varies by industry, experience and company size. There’s also a balance between taking stock and monetary reward, so it can be hard to know what to charge.
The complexity and lack of transparency make it a difficult subject for NEDs to navigate, particularly for people who are new to these roles.
We wanted to explain how to approach NED pay and share what we’ve learnt from the Transpire community and our own NED roles to help you set rates and negotiate.
The feedback in this article is for illustrative purposes only. If you want more personalised advice or support, please think about joining the Transpire community.
How much do NEDs get paid?
The amount an NED is paid can vary drastically. As experienced NED Elizabeth Gooch MBE puts it, NED pay by private companies is “not an exact science”.
That said, there are three main factors to take into account when calculating NED pay:
- Company type: Turnover, sector and company age.
- Candidate experience: Career background and experience as an NED, and how relevant your background is to the role.
- Time commitment: Time needed for board and committee meetings and related preparation, and any additional support that’s needed.
In listed businesses there are much clearer benchmarks, which can be found in companies’ annual reports and accounts. Looking for a number of companies of a similar size in the same sector provides a useful reference point.
As an example, the BBC Board offers a yearly salary of £33,000 for NEDs for a time commitment of one to two days per week, plus an additional fee of £5,000 for chairing one of the permanent committees of the Board.
NED pay structure
The NED salary structure will be unique to every company. However, there are some general rules that all businesses can follow. According to the International Corporate Governance Network (ICGN), an NED remuneration policy should:
- Attract, reward and retain highly qualified candidates.
- Align the interests of NEDs with the interests of the company’s long-term shareholders.
- Provide comprehensive disclosure regarding the components of director remuneration including the philosophy behind the structure.
Annual salaries for NEDs
An annual salary should reflect the NED’s level of experience and the amount of time they will be required to work in the role.
If they will be taking on other responsibilities, such as chairman duties, this should be factored into the salary. The ICGN discourages meeting attendance fees or special one-off awards and we agree with this perspective.
Taking shares for an NED role
While salaries are the favoured approach, stock can help align interest and newer companies with less cash to invest can offer shares.
“I think the work needs to be attractive through pay and shareholdings to align interests,” said NED and Link Stone Advisory CEO Richard Spilsbury.
If shares are part of your remuneration package, it’s important that the value exchange is clear.
“Of course, startups don’t tend to have lots of money to pay in cash but the upside from share options could be much greater if you get things right,” said NED Luke Lang. “Crucially, both sides need to feel like they’re getting value from the role – when that doesn’t happen it’s time to move on.”
Elizabeth echoed this sentiment, saying that money can’t be the primary goal for this type of engagement.
“They [startup founders] need help and mentoring as much, if not more, than governance. It’s equally true that nothing of value comes for free. Startups should expect to compensate NEDs for their contribution – it leads to much more professional behaviour on both sides,” she said.
Working as an NED for free
The NEDs we talked to for this article also mentioned doing ad-hoc work through organisations that support entrepreneurs, to give back to the community.
Luke Lang founded equity crowdfunding platform Crowdcube, before recently becoming an NED. As he notes, investment and purpose play a role:
“At Crowdcube we never paid our NEDs; they were always involved because they loved our purpose, mission and vision and had likely invested in us as a result. This philosophy continues today as I tend to focus on businesses that inspire me personally.”
Developing your career as an NED
It’s important to consider where you are in your NED career when thinking about rates. You need to find a balance between the level of remuneration and building your portfolio.
“While I believe the value exchange needs to be clear for committed work, it is also important to be generous with your time to gain the experience and develop a profile,” said Linkstone’s Richard, who holds three NED roles and five board advisory roles. “Having built a portfolio, the key is getting the balance right.”
Accountability when deciding NED pay
As NED remuneration is decided by the board, it’s essential that there is no impropriety – or even the appearance of any. Companies must be open and transparent about the NED salary and how it was decided upon.
Formed solely of independent board directors, the remuneration committee should set an NED payment structure that aligns with company goals. The committee should review the payment package on an annual basis.
The committee should be able to seek outside advice when deciding NED pay. In such cases, the consultant must be independent of the company, its management and directors.
Get shareholder approval
Before deciding upon a salary, it is a good idea to get shareholder approval. The ICGN strongly supports the practice of getting shareholder approval and recommends companies seek shareholder approval irrespective of any legal requirement.
Thinking about what attracts you to NED roles
Finally, it’s important you’re clear on what you want from NED roles. You might want to attain a certain level of salary, keep active in your industry, give back to newer companies or, more likely, have a mix of these incentives.
Taking time to understand what you want from NED roles, whether you’re new to these positions or looking to develop an existing career, is critical. If you want help developing your thinking, please consider joining the Transpire community and talking to one of our coaches.