Damien Knight, a Principal at remuneration consultancy MM&K, discusses the findings of a recent survey of Chairman and Non-Executive Director fees, time commitments and views.

http://www.mm-k.com/

Survey Headlines:

  • Chairmen and NEDs are generally paid a fixed fee.  Larger companies pay committee fees on top of the basic fixed fee.
  • Fees paid vary considerably, depending on company size, time commitments and many other factors.  MM&K finds the most useful way of comparing fee rates is to compute the notional daily rate.
  • NEDs are typically paid the equivalent of £1,110 to £1,300 per day.  Larger companies pay more – around £1,800, with the very largest paying £2,800 per day.
  • Fee rates for Chairman are somewhat higher, increasing to over £3,000 per day for the largest companies.
  • 38% of Chairmen and NEDs feel that fees have not kept up with increased responsibilities, personal risk and time demands. 
  • A small minority of Chairmen (23%) and NEDs (11%) receive share options. The UK Corporate Governance Code discourages options for Non-Executive Directors and the majority of the options granted are in AIM-listed companies where the Code does not formally apply. They are a useful form of cost-effective remuneration for Directors of smaller companies, particularly in start-up and fast growth situations.
  • Directors spoke of the need for “cognitive” and “cultural” diversity in the board, rather than a politically correct gender or ethnic diversity.  It was evident from responses that a mix of experience from different environments is important. 37% of companies now use executive search as the preferred method for finding new Directors.
  • Survey respondents sometimes hold diametrically opposed views on issues, a warning that all companies are not the same and different company circumstances need very different solutions.
  • A significant minority of NEDs feel frustrated because they don’t receive adequate information or have enough time to make sound decisions.

Nearly 400 Chairmen and Non-Executive Directors (NEDs), holding over 1,000 appointments, completed MM&K’s recent survey, Life in the Boardroom[1], now in its 24th year.  This is an authoritative survey which is recognised and supported by the Institute of Directors and the Quoted Companies Alliance.

Table A below shows the median fees and median commitment of time for Chairman and NEDs in various brackets of size by turnover. The survey reveals that the additional days in larger companies is chiefly spent in extra committee time: a result, no doubt, of the additional complexity of audit and remuneration issues.


Table A: Fees and time commitments - median figures

     
 

Turnover £ millions

<10

10 to 30

30 to 100

100 to 300

300 to 1,000

1,000 to 3,000

>3,000

Chairmen

             

Total annual fees £k

25

40

50

75

130

190

143

Days per year spent

30

28

37

38

43

50

49

Notional daily rate £

800

1,063

1,389

1,914

3,000

3,000

3,317

Increase in last 18m

0%

0%

0%

0%

0%

3%

0%

NEDs

             

Total annual fees £k

20

25

30

38

51

57

67

Days per year spent

19

16

22

26

27

31

30

Notional daily rate £

1,136

1,125

1,190

1,250

1,902

1,845

2,772

Increase in last 18m

0%

0%

0%

0%

0%

3%

3%

                 

The notional ‘daily rate’ = total fees divided by days spent per year.

38% of Chairmen and NEDs said their current fees were too low, given the current demands. This is not a high figure as surveys go – most employee surveys show around 50% of employees feel underpaid. But what is telling is that the dis-satisfied Directors say the problem is that their fees have not kept pace with increased responsibilities and time demands. In reality, although time demands have crept up in the past couple of years, they have not regained the levels seen in the couple of years immediately after the credit crisis.  The figures seem to suggest that the real issue is increasing regulation and personal risk coupled with a sense that Executives have done much better. The median (the middle) Chairman and NED fee increase in all but the largest turnover categories has been zero in the past 18 months (although average increases between 3% and 7% in the different size categories reveal that a few companies have awarded substantial rises.) 

NEDs no doubt read press reports suggesting that Executive Directors are getting increases in excess of 20% per annum. Such reports are misleading since they include the increase of the price of share incentives awarded some years ago and use highly selective comparison samples.  In truth, the database of the proxy advisory company, Manifest, shows that remuneration awarded to FTSE 100 Chief Executives has actually gone down in the past couple of years.

But it does not alter the fact that time commitments vary widely and sometimes the demands on NEDs can be excessive and need to be rewarded.  Whilst very few UK Directors would prefer to be paid on the “US model” of a retainer plus fees for recorded time, there clearly needs to be a provision in appointment letters for extra payment in situations where the demands become exceptional.

Damien Knight

January 2015

MM&K

020 7283 7200

M M & K Ltd is authorised and regulated by the FCA

http://www.mm-k.com/


[1] Life in the Boardroom, the MM&K 2014 survey of Chairmen and Non-Executive Directors, may be purchased from This email address is being protected from spambots. You need JavaScript enabled to view it. at a price of £1000 for corporations and professional firms and a concessionary price of £250 for individual NEDs buying a personal copy.

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