NED Fees are often a topic of discussion and must be truly representative of the personal liabilities and accountabilities NEDs take on when appointed. One persons view is of course very different to another, and the press is always keen to point the finger at excessive fees paid to directors. However in the NED environment, there is a direct correlation to performance and return and so paying proper fees is a fair expectation of any Board.
More recently there has been much debate concerning responsibilities of directors, as of course the law does not distinguish between executive or non executive directors. The legal obligations and accountabilities are the same, and as more and more directors are held to account for the actions of the companies of which they are a director, so the realisation that a fee below that of the IOD's recommendation at £25k pa is perhaps scant reward for the considerable and increasing risk owned by every director. Therefore the trend for directors fees is up as the risk/reward principle begins to leverage the cold realities of every day business life. In the Isle of Man there has been a generally accepted template which is shown below, where small/low volume businesses (and in this category many captives and low transaction/expert investor funds appear) then a fee of £6k and in some cases less, is adequate - this is a very low sum compared to the risks held by those directors. So although these fees are of course only a guideline, please be aware that the pressure, both locally and internationally, is on the increase of fees, but of course that is only in exchange for directors who will ensure they are capable of offering a true duty of skill and care that they owe to each company of which they involved.
Current IOM fee levels at February 2012 are:
- Small £7,500 pa (but do note the caveat above where this level of fee has a clear sell by date and may well in future start at the medium rate shown below) (non retail fund, small retail business, minimal trading activity - essentially non finance sector or non retail fund)
- Medium £16,000 pa
(near retail fund, medium sized business and complexity, moderate activity - most small finance sector, larger businesses and near retail funds)
- Large £26,000 pa
(retail fund, complex structure or large business with considerable activity - whether finance sector or not)
- AIM Funds £26,000-£55,000 pa
(but see below)
The Institute of Directors recommended NED entry level fee is £25,000 pa and for a Chairman £40,000 pa.
It should be pointed out however, that there are always exceptions, especially at the higher end, and there are known fees in excess of USD150,000 for at least one AIM fund. The more significant the business and its operation, then the higher the fee. At the lower end, there is even now a recognition of the responsibilities of a NED there and the same liabilities as for a larger organisation, and this minimum is beginning to find its base at £12,000 pa.
The IOD publish a helpful guide called The Role of the Non Executive Director which is worth reading.
Involvement
So just what are you letting yourself in for? Well it depends on the type of business you are joining, and the complexity of operation and therefore requirements on its Board. It is usually an expectation to join a Board committee, whether Audit, Remuneration or something else. Some positions attract additional remuneration, some do not, but all require time and commitment.
For example, in an AIM listed or complex fund business, you would need to spend at least one day on Due Diligence, two days reading and understanding the Prospectus(es) and probably a day of meetings with various parties; all to understand the business and all before you have earned a penny!
Then you should expect at least 4 meetings a year, Audit Committee probably 2 meetings a year, one of which will be at least a 1/2 day affair. Board meetings are usually a half day plus half day preparation and of course there will probably be a strategic retreat once a year that is usually a full day itself plus preparation.
The Higgs Report recommended that NEDs should stand down after 9 years in post.
Links
The Guernsey Branch of the Institute of Directors recently supported a survey with KPMG in the Channel Islands and there results are in the IOD Guernsey Newsletter. Also the IOD Director magazine ran an interesting article titled The Good Servant in the January 2012 edition.
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