Setting Non-Executive Directors Fees

In the first of a series of articles around Governance and the role of the Company Secretary, Rajith Loganathan discusses non-executive Directors fees in privately held companies.

Ever wondered how much you should be paying in non-executive Directors fees?

Many private companies, closely held and family-run, do not pay their directors fees for their services as a “director”. So when the decision is made to bring in a non-executive director, the inevitable question arises: how much to pay?

A fee paid to a director is usually made-up from components and may include one or more of the following:

• base fee;
• fee for work on committees;
• benefits (travel and accommodation); and
• superannuation

Private company accounts usually do not detail fees paid to directors. Listed public companies, on the other hand, have to adhere to certain guidelines in setting and reporting fees paid to directors.

As example, here is an extract from a listed public company’s annual report.

Source: Bellamy’s Annual Report 2015

There are organisations who conduct surveys from time to time to obtain data on remuneration policies and practices, which are available for purchase.  However, there is no guarantee that you can find a company that it identical to yours (in terms of turnover, size, industry) to use as a bench mark to base your fees.

Here are some other questions you’ll need to ask:

• how much should we pay a director when he/she is member of board sub-committee?
• how do we pay the Board Chairman/Board sub-committee Chairman?
• how much should be allocated as a pool of fees to split among directors?
• do we pay extra for work as a nominated director on a related (external) board, and if so how much?
• do “senior” directors get paid more?
• how does this [directors fees] relate to the CEO’s pay?

This is where Optimal can help you.

We have consultants who have worked alongside companies and with boards, assisting them in setting fee structures. We will build a model that is customised to your organisation, addressing the issues relevant to your business and establishing your own bench mark for the future.