UK non-executive pay should be raised, with shared-based remuneration equal in value to cash fees, according to a new report from activist investors Cevian Capital.

The report argues that non-executive roles have become “materially more demanding” at a time when UK NED pay has fallen behind that of other jurisdictions. The report also says UK non-executives have “too little alignment with the long-term success of their companies”.

Writing on LinkedIn, Cevian’s senior partner, Harlan Zimmerman, says: “The point is not that UK NEDs should be paid more for doing the same job. It’s that the job itself needs to evolve—being paid more to do more.”

He adds: “Three things need to be addressed together. NEDs need more time to engage with what matters most.

They need more meaningful ownership in the companies they serve, so they are aligned with long-term outcomes.

“And they need more competitive pay, to attract and retain the calibre of director FTSE 100 companies require.”

The report comes at a time when debate about non-executive pay is already underway.

Back in December, a report from Alvarez & Marsal said non-executive pay was in need of a “reset”, after research showed that fees in the FTSE 100 were down more than 10% in real terms over the past ten years.

That followed just a month after regulators issued guidance clarifying that non-executives could receive part of their pay in shares.

Richard Moriarty, chief executive of the Financial Reporting Council, said payment using shares would be acceptable, as long as companies maintain “transparency about their rationale and approach”.

“The UK Corporate Governance Code’s comply or explain approach gives companies the flexibility to adopt governance practices that work for their specific circumstances and is a key asset for the UK in terms of its international competitiveness. We want to encourage boards to use this flexibility thoughtfully.”

Other jurisdictions

Cevian’s report says median FTSE 100 non-executive pay is £80,000. This compares to £229,000 in the US, with around two thirds coming in the form of shares. In Switzerland’s SMI 20 companies, the figure is £224,000, with a fifty-fifty split between cash and shares.

Changes in the UK should start in the 2027 AGM season, according to Cevian but, in return, companies and their non-executives should “tighten” overboarding rules, with NEDs taking on no more than three roles.

In mapping out its approach, Cevian says: “The mechanics are deliberately simple. No performance conditions. No new valuation methodology. No change to how base fees are set. No changes to corporate governance guidelines.

“A company that adopts the approach immediately increases alignment, increases the competitiveness of NED pay and increases the ability of its board to contribute to long-term value creation.”

‘The correct starting point’

The proposals met with a welcome in many quarters. Hans-Christoph Hirt, former stewardship expert at Fidelio and now a senior adviser for the London School of Economics’ financial markets group, said: “Anchoring the debate in the role, commitment and alignment of directors, rather than pay levels versus the US is the correct starting point.”

But he adds that the report should “not be adopted off the shelf”.

“Its real value is as a trigger for candid conversations between investors and chairs, on a topic awkward for chairs and NEDs to raise themselves.”

For many, higher executive and non-executive pay is seen as key elements in attracting talent that will help halt the decline in London listings and the flight of companies to other markets.

Adam Oliver, managing director of Middlemore, a recruitment firm, writes that the focus on pay “suggests London’s problem isn’t just valuation or liquidity, it’s calibre”.

“If the best board talent is pricing itself into New York (and Zurich), no amount of listing reform fixes that gap on its own.

“Cevian’s proposal is a bet that paying for better boards is cheaper than watching more companies walk.”

Just as executive pay became a cause célèbre following a debate kicked off in 2023 by senior City figures, non-executive pay appears to be receiving the same treatment. It remains to be seen whether it will boost London as a location to be listed.