How Much Should a Non-Executive Director Be Paid?

Welcome to the NED Capital Podcast, where we explore the issues that matter to chairs, CEOs, investors and business owners when building effective boards.

Today, we're looking at one of the most practical questions surrounding Non-Executive Director appointments:

How much should a NED actually be paid?

NED remuneration can be surprisingly difficult to benchmark.

Unlike executive salaries, there isn't a single straightforward salary scale that applies across every Non-Executive Director role. Fees can vary considerably depending on the size of the organisation, sector, complexity, risk, board responsibilities and the experience required from the individual.

That's why getting the fee structure right is an important part of the recruitment process.

We've produced a detailed NED Salary Guide to help businesses understand the market and benchmark appropriate remuneration for different types of Non-Executive Director appointment.

But before deciding on a figure, it's important to understand what you're actually paying for.

A NED isn't being employed to work a conventional five-day week.

Their value comes from experience, judgement, independence and the ability to challenge management constructively.

A highly experienced NED may only spend a limited number of days formally attending board meetings, but their contribution can extend considerably beyond those meetings.

They may review board papers, speak with the chair or CEO, participate in strategy discussions, attend committee meetings, advise on acquisitions or financing, and make themselves available when an important issue arises.

Consequently, looking purely at the number of days worked can give a misleading impression of the appropriate fee.

The first factor to consider is the size and complexity of the organisation.

A small private company with a relatively straightforward business model will normally have very different NED requirements from a large, regulated or internationally operating organisation.

The second factor is the level of responsibility.

Is the NED simply attending quarterly board meetings, or will they chair an important committee?

Will they be expected to provide additional strategic input?

Are they likely to become involved in fundraising, acquisitions, restructuring or succession planning?

The more responsibility attached to the position, the more carefully remuneration needs to be considered.

Sector is another important factor.

Certain industries require specialist knowledge, and the pool of people with that experience may be relatively small.

Financial services, healthcare, technology, private equity and regulated businesses can all require particularly specific NED expertise.

In those situations, attempting to minimise the fee can actually make recruitment more difficult.

The strongest candidates may simply have better opportunities elsewhere.

There is also an important distinction between the headline annual fee and the total remuneration package.

Our guide to How Non-Executive Director Fees Are Typically Structured looks at this in more detail.

Typically, remuneration can involve a basic annual board fee, with additional payments depending on responsibilities.

For example, the chair will normally command a higher fee than an ordinary NED because of the additional responsibility involved.

There may also be additional fees for committee chairs or particularly demanding assignments.

And then there is the question of expenses.

Travel, accommodation and other legitimate expenses may be reimbursed separately rather than being incorporated into the NED's annual fee.

The important point is to establish the structure clearly before the appointment is made.

Candidates should understand what the expected time commitment is, what meetings are involved, whether committee responsibilities are included and whether additional work will attract additional remuneration.

This transparency helps both sides.

For the company, it establishes a predictable cost.

For the candidate, it provides clarity about what is expected.

There is another issue that companies sometimes overlook: the relationship between fees and independence.

A NED should be sufficiently independent to challenge the executive team and, where relevant, shareholders or investors.

Remuneration should therefore be structured carefully and transparently.

For PE-backed businesses, for example, NED arrangements may look different from those of a conventional privately owned company.

There can also be circumstances where a NED receives additional remuneration for specific assignments. Again, the key is clarity and appropriate governance.

So how should a company actually approach benchmarking?

Start with the role rather than the individual.

Define the responsibilities.

Define the expected time commitment.

Identify the experience and expertise required.

Consider the size and complexity of the business.

Then benchmark the proposed fee against comparable appointments.

Only after that should you consider whether a particular candidate's experience justifies a different level of remuneration.

This prevents a common mistake: deciding what someone should be paid simply because they have an impressive CV.

An impressive CV does not automatically mean the role itself requires a premium fee.

Equally, a highly specialised mandate may require a higher fee even if the formal time commitment appears relatively modest.

The market for NEDs is ultimately a market for scarce experience and judgement.

If you need somebody who has successfully taken a company through an IPO, managed a major international acquisition programme or operated within a highly regulated environment, there may only be a relatively small number of credible candidates.

That needs to be reflected in the recruitment strategy and potentially in the remuneration.

At NED Capital, we help organisations think about these questions before launching a search.

The objective isn't simply to produce a number.

It's to establish a remuneration package that is competitive enough to attract the right candidates while remaining appropriate for the organisation and the responsibilities of the role.

If you're currently considering a Non-Executive Director appointment, our NED Salary Guide is a useful starting point.

And if you want to understand the mechanics behind NED remuneration, take a look at our guide to How Non-Executive Director Fees Are Typically Structured.

Ultimately, the right question isn't simply:

“What is the cheapest NED we can recruit?”

Nor is it:

“What is the most experienced person we can afford?”

The better question is:

“What level of experience and responsibility does our board require, and what remuneration will fairly reflect that?”

Get that balance right, and you significantly improve your chances of attracting the right candidates.

Because when it comes to Non-Executive Directors, you're not really paying for the number of hours they sit in a boardroom.

You're paying for the quality of judgement they bring when those hours matter.

Thank you for listening to the NED Capital Podcast.

If you're considering appointing a Non-Executive Director and would like to discuss the role, the market or appropriate remuneration, visit NED Capital or get in touch for a confidential conversation.