A general principle of governance, at least as applied to public companies or regulated businesses, is that there should be a strong and independent element on the board. A board would then usually consist of three types of directors; the executives whose principle job is to manage the company day-to-say, non-executive directors who would typically represent the interests of major shareholders and directors who are independent of both management and major shareholders and by definition must be non-executive. In this article we have considered fee practices for both types of non-executive directors and referred to them as “NEDs”.
The roles and responsibilities of NED’s are quite distinct from executive directors; their duties should be primarily oversight of their company’s affairs and their commitment would be part-time. As such, the level and structure of their remuneration should be expected to be different from executive directors. Indeed, owing to the fact that NEDs are not employees of the company, their compensation is often referred to as fees, rather than remuneration.