In this Demystifying series, we shed light on what non-executives actually get paid. The role of a non-executive director in 2020 is far from the board room stereotypes of smoking jackets, whiskey and private members clubs with panelled walls.
How do NEDs get paid?
Non-executive directors of companies can typically expect to be paid a salary and often the NED pay is fixed and clearly explained in the advertised vacancy. This will usually be very structured – i.e. you might get £20,000 for being a Non-executive Director, an additional £5,000 for sitting on the Risk Committee, and a further £10,000 for a Chair role, and you wouldn’t usually expect to negotiate on this. The money will be paid monthly like a salary, but you are not legally an employee. NEDs do not typically recieve any other employee benefits, pension payments, or bonuses. While the Executive directors are likely to have some of their pay be performance based, NEDs do not. In some cases, the company will pay your tax for you (like normal P.A.Y.E.) and in others they will pay you gross and you will need to file a self-assessment tax return.
So, how much do NEDs get paid?
The quick answer is that, like any job, it varies a lot. It depends on the size and type of organisation, and if you take on any more responsibility like being on a committee or becoming the chair.
The biggest factor is the type of organisation and board. Charity trustees, by law, are volunteer roles – they usually pay expenses but there is no annual pay. This used to be the case for Housing Associations but they now typically pay their board members – anything from £3,000 a year up to more than £20,000 for chair roles of large associations.
Pension Trusts are a bit more lucrative – the average Trustee Salary was £20,384 in 2019.
NHS Trusts and Foundation Trusts all also have boards of non-executive directors. At the moment NHS Trusts have a fixed pay of £6,157, which is set by the Secretary of State. NHS Foundation Trusts set their own pay, meaning a much greater variation – ranging from £7,000 to £21,000 for non-executives. This was reviewed in October 2019 and it will be reformed over the next five years to make the difference less pronounced. By 2022 all NHS trusts and foundation trust board members will be paid £13,000 a year.
For company boards, there is almost no limit to how much or little companies can pay. The average NED pay for AIM-listed companies is £36,000 and it’s £44,000 for small market capitalisation (SmallCap) companies. In the FTSE250 it’s £53,000, while a FTSE 100 NED base salary can be anything from £100,000 – £300,000. Chairing a committee will come with a higher salary – this is usually a flat rate for each committee and may vary from committee to committee as some have more responsibility and more frequent meetings. The Chair of the board will be paid a lot more: the current chair of HSBC has an annual salary of £1.5m.
Getting data on private company boards is more tricky but the pay can be anything upwards from £3,000 up to around £50,000, or more for much bigger companies. Private companies are more likely to appoint Board Advisers (rather than appointing them as legal directors) and these too can vary hugely in pay – anything from £2,000 upwards.
Some startups might offer a mix of remuneration, such as a smaller salary and shares in the company. Another common set-up is Angel investment, where an individual invests in a startup or early-stage business and will usually become a director (at Dynamic Boards we don’t advertise these roles).
Is it worth it?
This might seem like a lot of money for a part-time role. It is, of course, but it is not without its challenges, and generally, the NED community wouldn’t describe it as a fast way of getting rich. If you’re in it for the money, you’re in the wrong game! Some things to consider when you’re weighing it up…
- Time commitment: the typical role will be at least 10 days a year (see our blog ‘what is a NED’ to find out more about what directors do) and it can be much more than that – a Chair of a FTSE 100 company might be up to two days a week. The pay stays the same no matter what happens that year, so at times of crisis or change non-execs may need to put in much more time and focus, too.
- Legal liability: legally, as a director of the company, you are responsible for the business and its future (blog to come soon on this). This is a lot of responsibility for a role where you might only see your fellow board members in person once every one or two months.
- Reputation: you’re associating yourself – both legally and formally – with a company and what happens to that company. You might not have input on every decision, and if something goes wrong you will be involved throughout and will have the reputational fallout. Of course, if it does well, there are reputational gains to be made, too.
Most companies will disclose NED pay in their role advert. If you’re interested in viewing our board vacancies please click here.