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Payments to UK non-executive directors have fallen more than 10 per cent in real terms over the past decade, raising concerns that London-listed companies will struggle to attract experienced board members, new research has found.
Median base fees for FTSE 100 non-executive directors have lagged behind consumer price inflation by 11.8 per cent, a report by consultancy Alvarez & Marsal found, despite tighter regulations increasing the time commitment and complexity of the roles.
“Companies will struggle to recruit NEDs who have not already generated substantial wealth from previous roles, if fees are not sufficient,” the report said. It was “dangerous” for the UK market to rely on non-financial benefits such as prestige to attract quality directors, it added.
US-listed companies of a similar size offer base fees for non-executive directors that are three times those offered by their FTSE 100 counterparts, Alvarez & Marsal found.
Without competitive fees, UK-listed companies might struggle to compete with US groups to attract the best talent for their boards, the consultancy said.
The UK government has sought to bolster the country’s competitiveness with changes to corporate governance rules.
The Financial Reporting Council last month updated its guidance on non-executive pay, including encouraging greater share-based remuneration. The government said the move was intended to “enhance the ability of UK-listed companies to attract the highest calibre of talent on the global stage”.
Non-executive directorships are part-time roles intended to provide “independent oversight and constructive challenge” to companies’ executives, according to the Institute of Directors.
A sharp fall in companies listing on the London Stock Exchange in recent years has stoked concerns about the City losing its appeal, including on pay, with some groups opting for New York.
AstraZeneca, the FTSE 100’s most valuable company, last month won shareholder backing for a plan to elevate its New York listing.
NatWest set its non-executive directors’ base pay at £88,000 this year, while US Bancorp, which has a similar market capitalisation, paid the equivalent of about $285,000 (£215,000) by adding shares on top of the base pay.
London-listed Unilever set base pay for non-executive directors at £95,000 this year, while Nasdaq-listed PepsiCo paid about $320,000.
According to Alvarez & Marsal, median base fees for FTSE 100 non-executives are £81,000 a year, with chairs getting £475,000. Directors are paid between £17,000 and £27,000 on average for chairing different board committees.
The Alvarez & Marsal report on non-executive pay follows a successful push by the LSE for investors to back higher pay for the executive directors who run UK-listed companies day to day.
LSE chief Julia Hoggett said last month that UK companies were now more “forceful” about rewarding top executives as they seek to attract top candidates.
David Tuch, a managing director at Alvarez & Marsal and author of the report, said that on top of concerns about non-executives’ pay, investor pressure against “overboarding” — holding board seats at three or more groups — had “intensified”.
As a result, “the pool of individuals able to take on these responsibilities without appropriate remuneration is narrowing”, he said.
Alvarez & Marsal’s report found that only 3 per cent of the roughly 600 companies that make up the FTSE All-Share index offered shares as part of their non-executive directors’ fee arrangements. Just 13 per cent had any shareholding guidelines for non-executive directors, it said, adding that similar-sized listed companies in the US typically paid out 60 to 70 per cent of the fee in shares.
However, changing the structure of fees was “unlikely to materially improve competitiveness”, unless their value was also addressed, the Alvarez & Marsal report added.
