Non-executive directors (NEDs) are facing ever increasing workloads and the risks that come with their responsibilities are becoming ever more apparent. Most NEDs choose their companies for a range of reasons with fees being a secondary consideration. However, if fees are perceived as being too low, companies will have difficulties in attracting high quality directors or, worse, have directors who are not motivated to go beyond their basic duties.
Non-executive director fees have been rising by as much as 13 per cent annually for top companies in the last three years.
The first is, essentially, subjective: are the fees sufficient for the time committed by directors and the risks that they are subject to? Different directors would expect to have different views on their own efforts and responsibilities making it difficult to find a level that satisfies everyone.
The second perspective is objective; how does a particular company’s fees compare to other similar boards? This question can be considered by looking at other companies where boards have similar structures (e.g. a non-executive chairman) and where directors have comparable responsibilities.