NEDs spend more time on the job

Jun 21 2007 by Nic Paton Print This Article

British non-executive directors saw their salaries rise by an inflation-busting six per cent last year. But far from being fat-cats, their salary growth has slowed dramatically even as demands on their time have risen sharply.

In the four years since the Higgs review recommended greater accountability for company boards and a more demanding and influential role for non-executive directors, the role and levels of remuneration have changed immeasurably, said the research by PricewaterhouseCoopers LLP.

The six per cent increase was much lower than in recent history, it pointed out.

At the same time, British companies are expecting more out of their non-executive directors than ever before, with the average director's time commitment rising from 15 days in 2003 to 20 days in 2007, it said.

Non-executive directors are under much closer scrutiny too, with companies paying closer attention to their performance and effectiveness, said PwC.

Half of the companies polled said they had training programmes in place, while three quarters employed some kind of effectiveness monitoring.

A quarter also actively encouraged their NEDs to take up positions on other boards, with just one in ten discouraging this.

Sean O'Hare, partner at PwC, said: "Results suggest that the rate of fee increases has slowed while the duties expected of NEDs continue to increase.

"The role of the chair of the remuneration committee is widely understood to be becoming more onerous and it will be interesting to see if this increases in future years," he added.

"Also, although board effectiveness was made a key recommendation of Higgs' Review of the role and effectiveness of non-executive directors, the survey results show that only eight per cent of companies are seeking external advice on this, which has led some to question the robustness and independence of the process.

"From our discussions with NEDs it seems that chairmen in their first year generally prefer to adopt internal processes and intend to seek outside help at a later stage," he stressed.

In more detail, fee levels generally were influenced by both company size and time spent doing the job, the survey found.

The six per cent increase in fees for directors and chairmen compared with 12 per cent in 2006 and 15 per cent in 2005, it added.

This suggested that the trend for blanket fee increases to non-executives had come to an end and firms were focusing increases on more specific aspects of the roles, such as senior independent director fees or being the chairman of the audit committee.

The percentage of female chairmen, deputy chairmen and other directors had doubled in the past eight years, from eight per cent in 1999 to 15 per cent in 2007, reflecting increased equality in all sizes of company.

The average non-executive chairman was now 62, while the average for a deputy chairman was 63 and a director 58.

The majority of NEDs were now appointed for an initial three-year term, with just a fifth of companies enforcing limits on the length of time one could serve.

More than six out of 10 companies had a formal induction procedure for non-executives with half offering a training programme and three quarters a system of board effectiveness monitoring, typically questionnaires and interviews.

Few companies, the survey concluded, were now paying their non-executive directors in shares, although this was something considered of merit by the Higgs review.

"Although there has been much discussion on this subject since Higgs' report, few companies are taking this advice. Only nine per cent of companies currently pay in shares and only six per cent are considering doing so," said O'Hare.