Non-exec directors getting more for less

Non-execs' pay has gone up - despite the fact that they're working no harder and are no more effective...

Last Updated: 31 Aug 2010

According to new research by remuneration consultants MM&K, NEDs are getting paid 25% more than they were two years ago, despite putting in more or less the same time commitment (clearly non-exec appointment specialists like Hanson Green, a partner on this research, are doing some sterling work on salary negotiation). What’s more, a third of respondents admitted that they didn’t have the power to control their chairman. That’s a bit worrying in the current climate, particularly since the actual proportion (i.e. including those who were too embarrassed to admit it) is probably even higher…

The research found that the median fee for non-execs at the UK’s biggest companies has risen to £75,000 – equivalent to a daily rate of £2,500, based on the standard 30-day workload - suggesting that some companies under pressure to professionalise their boards have done so largely by hiking wages. Perhaps this isn't too unreasonable, when you think that big companies will spend more than that on lawyers and accountants (and the median daily rate drops to about £1,100 for small caps) - although some believe that if non-execs are doing it for the money, that's when you should start worrying about them...

However, the really surprising thing is that their workload doesn’t seem to have increased in the last two years. You’d have thought that the whole economic meltdown thing might have resulted in the odd extra board meeting or three, but apparently NEDs are putting in about the same number of hours now as they were then. It’s a different story for chairmen, who are apparently spending 43% more time in the role than they were two years ago (and watching the likes of RBS’s Sir Tom McKillop and HBOS’s Lord Stevenson squirming in front of the Treasury Select Committee will encourage them to work even harder) – yet their 20% average pay hike is actually less than that of non-execs.

This pay rise discrepancy may seem even odder when you notice that 36% of non-execs aren’t confident that they can control their chairman – which shouldn’t really happen if they’re following the City’s Combined Code of Practice, and suggests that there’s something seriously wrong with the boards concerned. ‘Anyone who feels they haven’t got enough power is on a dysfunctional board and either needs to step down or work with the chairman to get it right,’ insists Hanson Green’s Peter Waine.

Then again, if their pay keeps going up at this rate, without any extra work, they don’t have much incentive to quit, do they? If we want to improve corporate governance – and the problem has surely never been more pressing – this study suggests that we need to go back to the drawing board on boardroom incentives...

In today's bulletin:
Cadbury Milking the gloom as profits jump 30%
Sir Philip Green to merge Arcadia and Bhs
Airports and trains struggle as passenger numbers drop
SMEs stamp their feet over Royal Mail sale
Non-exec directors getting more for less

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