Board and non-executive roles
Do non-executive directors get paid?
Most non-executive directors are paid a fee, set either under the company's articles of association or by the board. The fee reflects time commitment and responsibility rather than performance. Under the UK Corporate Governance Code, non-executive pay should not include share options or other performance-related elements. Some non-executives, particularly in charities and early-stage companies, serve unpaid.
Who decides the fee
Provision 34 of the UK Corporate Governance Code 2024 states that the remuneration of non-executive directors should be determined in accordance with the articles of association or, alternatively, by the board. It is not set by the remuneration committee, which under Provision 33 handles executive director pay and the pay of the chair.
Why the fee is not performance-related
The same provision says levels of remuneration for the chair and all non-executive directors should reflect the time commitment and responsibilities of the role, and that remuneration for all non-executive directors should not include share options or other performance-related elements.
The logic is independence. A non-executive whose income moves with the share price is being paid to agree with the executive team, which is the opposite of what the seat exists for. Provision 10 of the Code treats additional remuneration beyond a director's fee, including participation in a share option or performance-related pay scheme, as a circumstance likely to impair independence.
What this means for a private company
The Code binds listed companies in the commercial companies and closed-ended investment funds categories of the UK Listing Rules. A private company can pay a non-executive however its articles allow, and equity is common in early-stage boards.
It is still worth understanding what you are buying. Equity-heavy non-executive pay buys enthusiasm; a flat fee buys someone who can tell you the deal is wrong. Boards that expect real challenge usually separate the two, and this practice takes non-executive appointments on fee terms rather than performance-linked ones.
Sources and review
- Financial Reporting Council, UK Corporate Governance Code 2024, published 22 January 2024. Provision 34, remuneration of non-executive directors.
- Financial Reporting Council, UK Corporate Governance Code 2024, published 22 January 2024. Provision 10, circumstances likely to impair independence.
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