How to become a non-executive director

The role of non-executive director (NED) provides independent oversight and, when required, constructive challenge to the executive directors.

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NEDs are vital to any organisation for several reasons, bringing specialist expertise and valuable insights and their independence from the main management of the company, also makes them ideal for monitoring and evaluating a company’s executive directors.

In practice you will most likely be expected to focus on matters that are raised in general board meetings, providing an independent view of the company separate from its day-to-day running.

However, being a NED is not simply a matter of displaying the necessary qualities – business life now includes sophisticated compliance and risk issues (such as cybercrime) which will quickly expose any ‘gifted amateur’ NEDs.

You should also note that UK law does not distinguish between executive and non-executive directors – all board members have the same duties and responsibilities.

Becoming a NED is therefore a serious undertaking which requires self-examination and detailed research into companies which present a NED opportunity.

IoD can Help.

Check out the IoD open courses. These are specifically designed for directors, covering the wide spectrum of roles, responsibilities and leadership skills that are essential in today’s evolving business landscape.

These director training courses are the perfect form of CPD to enhance your knowledge and skills in a flexible, interactive environment. Their expert practitioners deliver the latest strategic insight and live industry case studies for practical application. IoD open courses can also form part of a tailored training package for you and your organisation.

The defining quality of a NED is their independence from the company’s executive directors.

To be independent you should have no contractual relationship with the company other than your position as a contracted NED.

The Cadbury report for example states that ‘the majority should be independent of management and free from any business or other relationships which could materially interfere with the exercise of their independent judgement’.

The Association of British Insurers and the National Association of Pension Funds have stated that the following could compromise your independence:

  • Being a former executive of the company
  • Having any immediate or past contractual relationship with the company
  • Selection by an informal process
  • Having share options or a pension with the company
  • Representing a significant shareholder
  • Being judged not to be independent for any other reason

However, there can be exceptions to the above which can be to the advantage of the company e.g. a solicitor or accountant that has worked for the company or if the NED is a minority shareholder. None of the above is mandatory in the legal sense.

So How much do Non-Executive Directors Earn?

Obviously, there is no fixed rate of pay for non-executive directors. Remuneration varies according to company size, the time commitment required from the NED, and their perceived value to the business in terms of ability and experience. NED pay may also be increased by additional fees for serving on board committees.

It is possible to offer some general guidance, drawing on surveys of NED pay.

The IoD Business Information Service holds copies of the ‘Life in The Boardroom’ series of Chair and NED pay surveys. The latest edition (2016) reports that across all UK companies which responded to the survey, NED pay ranges from £38,000-£105,000. The highest figure is for £3bn companies and above. We can reasonably say that £38,000-£40,000 will be more usual amongst UK SMEs. IoD members can ask the Business Information Service for more detail on specific turnover bands.

According to KPMG’s Guide to directors’ remuneration 2017, NED pay in FTSE250 companies ranges from £48,000 to £60,000. Pay at FTSE100 companies is stated at £61,000-£79,000.

So naturally it pays to be a NED.

 

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