Non-executive director shortfall

- Compliance obligations will require FTSE 350 to appoint at least 145 new members next year -

- Non-executive directorsí fees increase by 10% -

- Women still lack presence on the board ñ



Deloitte has today predicted that businesses will struggle to recruit non-executive directors, with individuals reluctant to take up positions as a result of the risk and responsibilities involved. The report, Board Structure and non-executive directorsí fees, also shows that non-executive directorsí fees have increased by 10%, a sharp rise compared with 5.8% last year. The median fees for non-executive directors now range from 32,500 in the smallest FTSE companies to 66,500 in the largest.

Carol Arrowsmith, head of remuneration at Deloitte, comments:

ìBoards have undergone significant changes over the past year which have increased the responsibilities and time commitment of non-executive directors. The Combined Code has also put pressure on individuals to hold fewer non-executive positions and with the requirement that 50% of the board be made up of independent non-executive directors, the demand for high quality individuals is increasing. All of this has impacted on fee levels.

ì76% of companies have changed the composition of the board in the past twelve months and there are now 50% more non-executives than executive directors, compared to 40% more last year.î

FTSE 350 companies do not seem to be widening the search for suitable candidates. The majority of appointments are still likely to be from other large UK public companies. There has been a very small increase in the number of female members on boards of FTSE companies: 9% of FTSE 350 non-executives compared to 8% last year. In addition, there has only been a slight increase in the number of non-UK nationals on boards of UK companies, from 14% last year to 16% this year.

Arrowsmith comments: ìWe anticipate that it may be harder to recruit non-executive directors in the year ahead as individuals are increasingly being put off by the risk, responsibilities and time commitment involved. Companies may need to look further afield to recruit, as many companies still need to appoint more non-executive directors to fulfil the Combined Code requirements.î

Currently 16% of FTSE 100 and 39% of FTSE 250 companies have boards which comprise of less than 50% independent directors. These companies would need to appoint an additional 145 directors in order to be fully compliant.

A high proportion of companies have now developed a more transparent fee policy which includes a basic fee level and additional compensation for membership of a board committee, and may include additional fees for attending meetings, hourly rates for exceptional workload and overseas travel allowances.

Carol Arrowsmith believes that shareholders recognise the need for increased fees but they will also seek assurance that companies are getting value for money from their non-executives. This is likely to lead to more regular reviews of fee policy, along with benchmarking exercises similar to those for executive directors.

ìMost companies have moved a long way towards compliance with Combined Code requirements and some have gone further and demonstrated that these processes are embedded in the organisation and are adding value rather than being a box ticking exercise. We believe that over the next twelve months more companies will recognise that the framework provided by the Combined Code can and does improve the competence and effectiveness of boards,î concludes Arrowsmith.

Other key findings:

Fees for non-executive chairman are typically around 30% to 50% of the salary of the top full time executive in FTSE 100 and 25% to 35% in FTSE 250 companies.
The median basic fee for a non-executive director of a FTSE 100 company is 41,000 compared with 31,250 in FTSE 250 companies.

There has been an increase in the number of companies using shares in payment, or part payment, of non-executive director fees, or where the director is encouraged to take the fees in shares or is required to maintain a specified shareholding. 15% of FTSE 350 companies appear to operate such a policy compared to 11% last year. It is more common in FTSE 100 companies where 26% of companies now operate such a policy compared to 19% last year.