If you are planning on venturing into the world of a portfolio career as a Non-Executive Director just for the money it won’t work. Not that it’s not lucrative, it can be very much so. But a great Non-Executive Director will have so much more impact and gravitas if money is only part of the equation.
It may be worth knowing that some Non-Executive Director (NED) roles are entirely unpaid. Charities and not-for-profit businesses generally pay nothing, and sometimes not even expenses. The public sector, NHS Trusts and housing associations pay only modest fees and private business will vary tremendously depending on their scale and your experience.
Certainly, you can expect more of the ‘big bucks’ in listed companies and if you fancy a trip across the Atlantic, remuneration for NEDs is approximately double the UK rates in many businesses. Remuneration doesn’t of course have to be solely via way of straight monetary reward. You may decide you would be willing to take equity in return for your services. Generally, this means instead of actual hard cash for your time, you will be awarded shares or share options. If you choose this right we recommend you have a watertight shareholder agreement or option scheme and this route does come with some positives and negatives.
As a positive and assuming you do not need immediate income generation, you are being gifted shares which in the longer term could have both an income stream (say from dividends) or a capital gain when the business is sold. On the negative side, aside from the obvious risk of the share value never coming to fruition this ‘skin in the game’ does of course dilute your ability to act completely independently. Whilst this isn’t a legal problem, it would prevent you from having the title of an independent director in a listed company as it would be against the UK corporate governance code.
I have always preferred not to take equity, as the song goes, I need to know “when to hold them when to fold them and when to walk away” and it’s much harder to do that if you have possible value tied into the business.
If you do go down this route, get a lawyer involved to look at the issues around share class (i.e. the rights attached to the share) and exit and dilution issues to name just a few things that can get challenging if you don’t sort out early on in the process.
If you go down the actual cash payment route, you need to consider if will you do this via your own personal service company or will you become an employee. Sometimes the decision isn’t always yours, as the revenue is increasingly examining more and more closely the use of personal services companies.
But what about the actual rate? If the role is paid and the rate has been set by a governing or regulatory body or a nomination committee you will have little if any room for manoeuvre. If the role has no stated remuneration then there is the dilemma of “how much am I worth and how much can the organization afford to pay me”. Too low, and the board’s perception of you may possibly decline. Too high, and you may find you are out of the game before it even starts. There are some remuneration benchmarking studies done every year but they tend to be for larger companies. Google will always provide some insight into these. For privately-owned companies, especially in the SME market it really is a bit of a negotiation game.
If you really like the business and you are new or relatively new to the boardroom you may be prepared to take a lower sum, say circa £500 per meeting. But as you gain in experience and your reputation is enhanced it would not be unreasonable for this to be more like £3k to £5k per meeting.
Don’t forget though, the meeting is only part of the role and you will be expected to include in this: meeting preparations, debriefs, phone and online support plus attendance at other networking events as needed.
Working this out by the hour will probably make you realise perhaps you are not being overpaid at all!
Certainly, if you are taking on committee roles in particular audit and risk it’s not unreasonable to ask for additional remuneration. Dependent on your contract and the nature of the business you should also look at and negotiate an expenses policy and a remuneration review period.
– Written by Jo Haigh
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