Non-executive directors (NEDs) say their independence is secure, despite growing pressure to increase their level of commitment, according to a survey. Non-executives also revealed they believe they are being underpaid for their time.
The research comes from consultancy Advanced Boardroom Excellence, which questioned NEDs across a range of subjects including independence, remuneration and time commitment.
The report asks if non-executives can remain independent while involvement with their company grows.
The report concludes: “We asked our sample of non-executives about independence and they did not see any potential for conflict.
“A few raised the issue of independence and long tenure but the majority thought that long-term involvement with a company improved their knowledge and understanding of its affairs, so adding to their effectiveness.”
Non-executives did recognise they were being involved in behaviour that could potentially undermine their independence. One respondent told researchers: “The problem is that non-executives are increasingly asked to become involved in things that will compromise their independence.”
Another believed politicians and regulators had confused the role of non-executives in the UK Corporate Governance Code.
“I think it should be possible to maintain independence but there is a danger that non-executives are obliged to get over-involved. Politicians don’t have enough knowledge about what the board and non-executives are there to do, and this is shown in the codes that have been implemented. Some new regulations have made our work unnecessarily complicated,” said one survey participant.
Meanwhile, respondents thought that companies were generally demanding more commitment from their non-executives. While the report concluded that they generally felt this was reasonable, some noted the pressures.
One non-executive said an increase in governance was undermining the time that could be dedicated to considering strategy and company performance.
“A massive increase in governance mitigates against the board being able to look at the strategy and performance of the business. People need to spend more time on this but governance is eating into the available time, and therefore the effectiveness, of the board.”
One area where respondents felt aggrieved was pay. The report concludes: “The consensus among our respondents is that remuneration has not kept pace with increased responsibilities and time demands.”
A non-executive commented: “We need to look at the ratio between CEO and non-executive director remuneration. This has grown beyond all measure over the past few years. Non-executive directors are paid far too small a proportion. The starting point for any ratio should be ten to one against the base salary, pension and benefits of the chief executive.”
Another added: “Remuneration is not sufficient but it is difficult to adjust the level of remuneration for non-executive directors at a time when there has been little, if any, wage inflation for workers. This is especially the case where there is significant corporate activity which takes that much more time but does not necessarily deliver immediate increases in profit.”
The report says it found that non-executives also believe fees could be increased for chairing committees and offered a view that £50,000 was a starting point for working as a non-executive on FTSE 250 companies. An additional £7,000 to £10,000 should be added for chairing a committee.
“Compared to the rate some of our respondents might charge for consultancy work, their non-executive fees are negligible. Respondents suggested that if a company will not pay the right ratio, or a day rate equivalent to that of the audit partner servicing the company’s account, then it needs to explain why. That would be a first step to ensuring a fair level of compensation,” says the report.