Best practices when paying Non-Executive Directors fees

Best practices when paying Non-Executive Directors fees

Deciding what to pay Non-Executive Directors is not an easy task. The Executive Management and remuneration committee members need to be careful when recommending NEDs fees. The likely impact of paying your Non-Executive Directors below general market practices is that they will rarely commit themselves to the business of the organisation. The dilemma is that if you pay way too much above market practices, it is likely to be viewed by other key stakeholders as self-enrichment and may attract unnecessary negative publicity. Employees and other stakeholders tend to view above-market Director’s fees as greediness.

What is a Non-Executive director?

A Non-Executive Director is a member of a company’s board of directors who is not part of the executive team. Non-Executive Directors are typically not involved in the day-to-day management of the organisation but are involved in policymaking and strategic leadership. Non-Executive Directors’ responsibilities include monitoring of the executive directors and acting in the interest of the company when making decisions. Non-executive directors carry significant potential risk and liability. This requires special skills, knowledge, experience and business focus, for which they need to be remunerated fairly.

Determining Non-Executive Directors’ fees

Determining what you should pay your Non-Executive Director is not easy. A number of factors will need to be evaluated first when determining what to pay your Non-Executive Directors. Some of the factors are:

  • The size of the organisation;
  • The industry and complexity of the business;
  • The number of meetings attended
  • The time commitment required of the Non-Executive Director.

Best Practices in non-executive directors fees

  • Non-Executive Directors’ fees should correlate with company size. Larger companies should generally pay higher director fees. The median total annual director compensation of S&P 500 companies (approximately $285,000) is 63% higher than the median total director pay for the rest of the Russell 3000. (ISS Analytics)
  • Non-Executive Directors’ fees should reflect in industries where specialised skills and expertise are required from NEDs. According to the ISS Analytics, among S&P 500 companies in US, those in the pharmaceutical and biotechnology firms offer the highest non-executive director pay packages with a median pay figure of approximately $347,000 per annum.
  • Non-Executive Director pay levels should generally correlate with CEO pay since both figures are typically determined by the size and complexity of the company. 
  • Time commitments for Non-Executive Directors must correlate with revenue size.
  • According to Pearl Meyer’s Non-Employee Director Pay Practices survey, respondents in the $3 billion or more category cited longest time commitments whilst respondents under $500 million category recorded lowest.
  • Approximately one-third of respondents in the Pearl Meyer’s Non-Employee Director Pay Practices survey compensate for activities such as special committee meetings,  and unusual events.
  • Industry and company size are the most important factor to consider for NED compensation benchmarking. According to Pearl Meyer’s Non-Employee Director Pay Practices survey, approximately half of respondents pay their Non-Executive Directors at the market 50th percentile while 25% target above the 50th percentile.
  • Differentiation can be made in the fees paid to resident versus non-resident directors.
  •  Providing additional compensation for example meeting fees and per diems in situations where time requirements are significantly greater than normal is also an emerging trend.

In conclusion, companies should ensure their Non-Executive Directors’ fees are sufficiently competitive to attract and retain highly qualified directors.

Taurai Masunda is a Business Analytics Consultant at Industrial Psychology Consultants (Pvt) Ltd a management and human resources consulting firm. https://www.linkedin.com/in/taurai-masunda-b3726110b/ Phone +263 4 481946-48/481950/2900276/2900966 or email: taurai@ipcconsultants.com  or visit our website at www.ipcconsultants.com

77 Responses

  1. Sqeyzx says:

    purchase ceftin pills – buy cialis for sale order generic tadalafil 40mg

  2. Aaeetr says:

    acillin pills – cheap tadalafil pill buy tadalafil 10mg online cheap

  3. Yimbiy says:

    amoxicillin 1000mg cheap – buy generic amoxil 250mg levitra pills

  4. Fxebhz says:

    ivermectin 200 – purchase vardenafil vardenafil online

  5. Mgkrse says:

    doxycycline over the counter – order doxycycline generic cialis 5mg over the counter

  6. Zspplm says:

    cialis 10mg generic – modafinil us generic provigil

  7. Zugcmz says:

    prednisone 5mg cost – men’s ed pills buy isotretinoin 10mg for sale

  8. Rvnvfc says:

    buy amoxicillin online – sildenafil 50mg price sildenafil for sale

  9. Dhseec says:

    order prednisolone 5mg generic – buy prednisolone 10mg without prescription buy generic sildenafil 150mg

  10. Ngmcrs says:

    generic furosemide 40mg – purchase doxycycline generic generic ivermectin online

  11. Flrvgb says:

    order plaquenil 400mg pill – order chloroquine 250mg generic baricitinib 4mg uk

  12. Nsyilg says:

    metformin 500mg drug – purchase metformin pills purchase amlodipine for sale

  13. Eudmic says:

    buy vardenafil generic – levitra uk order clomiphene 100mg generic

  14. Ajscyz says:

    albuterol for sale online – slots casino games priligy 90mg canada

  15. Eyuuzm says:

    synthroid generic – hydroxychloroquine 400mg oral order hydroxychloroquine 400mg generic

  16. Lmskzj says:

    cialis 40mg brand – sildenafil tablets sildenafil 100mg tablets

  17. Kosjjz says:

    buy deltasone sale – prednisone without prescription medication amoxicillin 1000mg oral

  18. Qrnirl says:

    diltiazem for sale online – order azithromycin 500mg without prescription buy neurontin 100mg generic

  19. Dgquoo says:

    buy lasix for sale – buy lasix sale order doxycycline 200mg for sale

  20. Yvbswq says:

    cenforce 100mg for sale – domperidone price order domperidone sale

  21. Hmtacx says:

    order viagra 50mg online cheap – sildenafil 100mg usa cialis pill

  22. Kjrehm says:

    modafinil canada – budesonide cheap purchase rhinocort online cheap

  23. Hxmadm says:

    isotretinoin tablet – buy zithromax 250mg generic cheap tetracycline

  24. Pmgmsp says:

    cyclobenzaprine 15mg oral – order inderal sale purchase inderal pills

  25. Haanpd says:

    plavix generic – reglan 10mg generic buy metoclopramide 20mg pill

  26. Ovgrqz says:

    cozaar 50mg for sale – esomeprazole 40mg drug promethazine order online

  27. Odfqhe says:

    buy levaquin 500mg pills – viagra overnight shipping goodrx cialis

  28. Ksjgqd says:

    buy cialis 20mg sale – tadalafil us buy tamsulosin 0.2mg for sale

  29. Ezeagc says:

    generic ondansetron – aldactone price buy valacyclovir 500mg generic

Leave a Reply

Your email address will not be published.