In response to concerns about top level pay there has been a change in the way in which fees for non-executive directors (NEDS) in UK FTSE 100 companies are calculated, according to research by PwC, which also shows that while the proportion of female NEDS in large companies is rising, more needs to be done to increase diversity
The firm’s annual NED report says there has been a second year of 3% fee increases. In 2016 this meant that median base fees moved from £65,000 to £66,000, whilst chairman fees increased by less than 2% to £400,000.
The level of fee increase is partly explained by a rise in the number of companies opting for annual fee reviews, moving away from substantial fee adjustments every two to three years.
Around 45% of FTSE 100 companies reviewed and increased NED fees this year. Of these companies nearly half had also increased fees in 2015. As a result, NED base fee increases are closer to, but still slightly above, pay increases across the rest of the employee population.
Marcus Peaker, partner in PwC’s reward and employment team, said: ‘The 2016 data suggests that there has been a conscious move to align adjustments in NED fee increases with that of the executive team and the rest of the workforce, through more gradual, smaller fee increases. Amidst the broader debate on fair pay, employers are mindful of the impact of perceived pay excess on reputation and brand.
The number of female FTSE 100 non-executive directors continued to rise this year to 31%, from 28.5% in 2015. The overall position for non-executives is better than the executive director position, with only 9% of FTSE 100 executive director positions held by women.
Peaker said: ‘While the progress on gender diversity among NEDs is now on an upward trajectory, there continues to be an absence of female executive directors at board level. And work is still required around wider diversity.
‘It is therefore imperative that companies dig deeper for the right set of skills and experience, and balance it against the need for a more diverse set of candidates.’
PwC warned that increasing pressure on the role of NEDs could still impact fees in the future, saying that risk and regulatory requirements for NEDs have increased in recent years.
Peaker said: ‘For example, there is now the expectation that it is the role of NEDs to liaise between the boardroom, external stakeholders and the wider workforce on issues such as executive pay.
‘As the demands of the role look set to continue, the time commitment and scrutiny will grow further. Yet, unsurprisingly, in the current environment, boards struggle to balance fees with the responsibilities that come with the role.’
