The level of UK non-executive director pay may be in need of a “reset”, according to an advisory firm, after research found that fees are more than 10% down in real terms over the past 10 years and fail to compete against the US.

According to the latest on non-exec fees from Alvarez & Marsal (A&M), the median non-executive fee in the FTSE 100 has “lagged” CPI inflation by 11.8% over the past decade, “representing a real-terms reduction at a time when both time commitment and complexity have risen”.

The report comes just a month after the Financial Reporting Council, the UK’s governance watchdog, issued guidance clearing the way for companies to pay non-executives in shares, after a period in which it was considered a potential breach of the UK Corporate Governance Code.

A&M reports that equivalent-sized US companies pay three times as much as their UK counterparts, with 60-70% of the fee paid in shares.

However, A&M is sceptical about whether more shares would help UK companies compete for non-executive talent and writes that overall “quantum” is the “elephant in the room”.

“Aligning the UK market more closely with the US by paying a greater proportion of the NED fee in shares will not improve competitiveness, unless the level of fee itself is also addressed.”

A&M says the reasons behind considering a reset are varied and include increased time commitments and the need to pay non-executives enough to focus on fewer roles.

A&M also says higher pay will expand the NED talent pool. “There is an increasing risk that companies will struggle to recruit NEDs who have not already generated substantial wealth from previous roles, if fees are not sufficient.”

Productivity push

Moves to clear the way for UK non-executives to receive some of their pay in shares is part of the government’s effort to adjust regulation to improve competitiveness and productivity—long lasting issues facing the UK economy.

After coming to power, chancellor Rachel Reeves famously said regulation was a “boot on the neck of business”.

Attention on non-executive pay comes at a time when many boards have been working to increase executive pay levels in light of a campaign launched in 2023 by Julia Hoggett, chief executive of the London Stock Exchange.

Last week, Hoggett was reported drawing attention to the success of her campaign to increase pay. She told a Financial Times conference that remuneration committees currently feel more secure offering big pay rises, largely because they feel strength in numbers.

“If one of your children is on the naughty step, it is a naughty step, but if all of your children are on the naughty step, it is a play date,” Hoggett said.

A&M finds that FTSE 100 non-executive pay rose 2.9% in the last year, in line with the 3% in the previous year. Chair fees have also increased by 3%.

While there is widespread anecdotal evidence of increased time commitments for non-execs, as well as more unscheduled work, A&M say few companies disclose the expected annual time commitment for non-executive directors. Where they do, it ranges from 14 to 30 days.