IN today's corporate landscape, the role of non-executive directors (NEDs) has become increasingly important. NEDs bring experience, expertise, and independent judgment to the boardroom.
However, one aspect that often raises questions is the compensation structure for NEDs. This article will explore the concept of non-executive director fees and retainers and provide a comprehensive understanding of what you need to know.
Non-executive directors are individuals, who are not involved in the day-to-day operations of a company but serve on its board of directors. They provide oversight, guidance, and strategic advice to the executive team. NEDs are typically appointed for their industry knowledge, leadership skills, and ability to offer an independent perspective.
Non-executive director fees
Non-executive director fees refer to the compensation paid to NEDs for their services. The fees vary significantly depending on company size, industry, responsibilities, and time commitment.
NEDs are usually paid a combination of fixed retainer fees and additional fees for attending board meetings or serving on committees.
Non-executive directors (NEDs) are critical in organizations' governance and strategic direction. As independent advisors, they bring valuable expertise and diverse perspectives to the boardroom. To compensate NEDs for their contributions, companies typically provide them with director fees.
Unlike executive directors who receive salaries, NEDs are compensated through fees and retainers. Director fees are usually paid per meeting attended. Director fees serve several purposes.
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Firstly, they recognise the time and effort NEDs dedicate to attending board meetings. Directors spend significant time preparing for meetings, reviewing materials, and engaging in discussions to make informed decisions. The fees compensate them for this commitment.
Retainers for non-executive directors
In addition to fees, non-executive directors may also receive a retainer. A retainer is a fixed payment made to NEDs to secure their availability and commitment to the company throughout the year.
It is often paid in advance per quarter. In some countries, it is paid a year in advance. The retainer fees are paid so NEDs can provide advice and support whenever required, even outside regular board meetings.
A retainer is a fixed fee paid to NEDs for their ongoing commitment and availability to the company. Unlike executive directors who receive salaries, NEDs are typically compensated through retainers and meeting fees.
The retainer is a baseline payment recognising the director's time, expertise, and responsibilities outside board meetings.
The purpose of a retainer is twofold. Firstly, it compensates NEDs for their time on board-related activities outside formal meetings.
This includes preparation for meetings, reviewing documents, engaging with management, and staying updated on industry trends.
Secondly, it ensures that NEDs remain committed to the organisation by providing financial stability and incentivising their long-term involvement.
Retainers also reflect the value that NEDs bring to the table. Their expertise in finance, human resources, strategy, risk management, or corporate governance is invaluable to companies seeking independent oversight.
Organisations acknowledge the importance of attracting high-calibre directors who can contribute to board discussions and decision-making processes by offering a retainer. It is worth noting that retainers should be structured to align with good governance practices.
They should be transparent and fair and reflect the director's level of commitment and contribution. Companies should also consider benchmarking retainers against industry standards to ensure competitiveness and avoid any perception of excessive compensation.
Several factors influence the determination of non-executive director fees and retainers. These include:
Company Size and Complexity: Larger companies with more complex operations often require higher expertise from their NEDs, resulting in higher fees and retainers.
Industry: NEDs in highly regulated industries or sectors with unique challenges may command higher fees due to the specialised knowledge and experience required.
Time Commitment: The amount of time NEDs are expected to dedicate to board meetings, committee work, and other responsibilities affects their compensation. Higher time commitments usually result in higher fees and retainers.
Experience and Expertise: NEDs with extensive industry experience, a strong track record, or specific expertise relevant to the company's needs may negotiate higher fees and retainers.
Board Responsibilities: NEDs who take on additional responsibilities, such as chairing committees or serving as board
chairs, receive additional compensation.
The director fees paid in most Zimbabwean companies are insignificant compared to what is paid in South Africa.
According to the 16th edition of PwC's Non-executive Director: Practices and Fees Trends Report, the median non-executive director (NED) fee for the Johannesburg Stock Exchange (JSE) Top 200 companies was R805 000 (US$42 237) for the period November 1 2021 to October 31 2022.
Nguwi is an occupational psychologist, data scientist, speaker and managing consultant at Industrial Psychology Consultants (Pvt) Ltd, a management and human resources consulting firm. — https://www.thehumancapitalhub.com or e-mail: [email protected].
