NED Compensation Benchmarking

Setting non-executive director fees looks simple until a board tries to do it properly. Pay too little and the board struggles to attract the people it needs, or ends up with directors who cannot give the role the time it demands. Pay too much, or pay in the wrong way, and the board’s independence and credibility with shareholders suffer. Benchmarking is the discipline that keeps fees in the right range and makes the decision defensible.

This page is about the process: how boards and remuneration committees benchmark NED and chair fees, which sources to use, and how practice differs between listed companies, private businesses and PE-backed boards. For indicative fee ranges by organisation type, see our NED salary guide, which is the place to start if you want to know what NEDs are typically paid. For how fees are usually built up, see our article on how non-executive director fees are typically structured.

Why Benchmark NED Fees?

Benchmarking does three jobs at once.

It supports recruitment. When a board is searching for a new NED or chair, the fee has to be competitive with what comparable boards offer for a comparable role. A fee that is out of line with the market narrows the field, often in ways that are hard to see until the shortlist arrives.

It protects independence. Non-executive pay should reward time and responsibility without creating dependence. A fee that is very large relative to a director’s other income, or that is tied to performance, can compromise the independent judgement the board relies on. Benchmarking against the market keeps fees at a level that recognises the role without distorting it.

It makes the decision defensible. In a listed company, NED fees are disclosed and shareholders vote on remuneration. In a private or PE-backed company, investors and lenders still scrutinise board costs. A fee set against a documented benchmark is far easier to explain than one set by negotiation alone.

Step 1: Choose the Right Peer Group

A benchmark is only as good as the comparison group. The most useful peer groups share several characteristics with the company.

• Size. Market capitalisation for listed companies; revenue, enterprise value or employee numbers for private ones. Size is usually the strongest single driver of NED fees.
• Ownership and listing status. FTSE 100, FTSE 250, smaller listed companies, AIM, investment trusts, PE-backed and privately owned companies each form distinct markets with different norms.
• Sector and complexity. Regulated sectors, especially financial services, tend to demand more time and carry more personal accountability, which affects fees. International operations and complex group structures do the same.
• Talent market. The group should include organisations that compete for the same kind of director, not just those that look similar on paper.

A peer group of a dozen or more comparable organisations usually gives a more reliable picture than a handful. Boards should record why each peer was chosen and avoid adjusting the group year by year to reach a preferred answer.

Step 2: Use Reliable Data Sources

NED fee data comes from a small number of sources, each with strengths and limitations.

Annual report remuneration disclosures. UK quoted companies must publish a directors’ remuneration report, including the fees paid to each non-executive director, and shareholders vote on it under section 439 of the Companies Act 2006. For listed peers, this is the most direct source: the actual fees for named roles, including committee chair and senior independent director supplements.

Published fee surveys. Several advisory and search firms publish regular surveys of NED and chair fees, mainly for FTSE companies and investment trusts, with some coverage of private and not-for-profit boards. Surveys are useful for a quick view of the market and for trends, but boards should check the sample, the date of the data and whether the figures are medians, averages or ranges.

Remuneration advisers. Listed companies often ask their remuneration consultants to prepare a bespoke benchmark. This can be more precise, but the board should understand the methodology and the peer group used.

Search firm market knowledge. For private and PE-backed boards, where fees are rarely published, the best evidence is often what comparable roles are being offered and accepted in current searches. Our NED salary guide summarises indicative ranges by organisation type for that reason.

Whatever the source, the board should note the date of the data. Fee markets move, and a benchmark several years old can mislead.

Step 3: Price the Time Commitment

The UK Corporate Governance Code says that levels of remuneration for the chair and all non-executive directors should reflect the time commitment and responsibilities of the role. That makes the expected time commitment a sensible anchor for any benchmark.

Boards should start by estimating realistically how many days a year the role requires: scheduled board and committee meetings, reading time, strategy sessions, site visits, induction, investor engagement and a reserve for unplanned events. Our articles on how much time a NED really commits each month and on time, liabilities and pay help with that estimate.

Comparing the implied day rate with the peer group is a useful cross-check. If a company’s NEDs are expected to give significantly more time than peers, because of a transformation, regulatory remediation or an active acquisition programme, the benchmark should reflect it. The time commitment should also be written into the role description and the letter of appointment, so that fee and expectations are aligned from the start.

Step 4: Benchmark the Supplements Separately

Most boards pay a base fee for board membership plus additional fees for extra responsibility. Each element should be benchmarked on its own terms rather than as a fixed percentage of the base fee.

Committee chairs. Chairing the audit, remuneration or risk committee involves significantly more work and personal exposure than ordinary membership. Audit and risk committee chairs in regulated businesses carry particular accountability; in FCA-regulated firms some of these roles are senior manager functions, such as the SMF10 and SMF11 risk and audit committee chair roles. Supplements should reflect the actual workload of each committee in this company.

Committee membership. Some companies pay a smaller fee for committee membership; others include it in the base fee. Either approach is defensible if applied consistently.

Senior independent director. The SID role carries specific responsibilities, including leading the appraisal of the chair, and usually attracts a supplement. Our guide to appointing a senior independent director explains the role.

The chair. The chair’s fee is normally set as a single all-inclusive fee rather than a base fee plus supplements, and is benchmarked against other chair roles, not against NED fees. Chair roles involve materially more time and leadership responsibility, as our guide to what a company chairman does explains.

Other roles. A designated NED for workforce engagement, a sustainability committee chair or a board member who chairs a subsidiary board may also warrant additional fees, if the extra work is real.

Who Decides NED Fees?

The rules on who sets NED pay depend on the company’s articles of association and, for listed companies, on the Code and on shareholder approval.

The articles. Under the model articles for private companies, directors are entitled to such remuneration as the directors determine. Many companies have their own articles that vary this. Listed company articles commonly set a maximum aggregate amount for non-executive fees, which can only be increased by shareholder resolution, so boards should check any cap before agreeing an increase.

The Code. For companies applying the UK Corporate Governance Code, the remuneration committee normally determines the chair’s remuneration, while fees for the other non-executive directors are set in accordance with the articles or by the board. No director should be involved in deciding their own remuneration, so NEDs should not vote on their own fees. The Code also says NED remuneration should not include share options or other performance-related elements.

Shareholders. UK quoted companies must put their directors’ remuneration policy to a binding shareholder vote at least every three years under section 439A of the Companies Act 2006, and the annual remuneration report to an advisory vote. NED fee levels and any changes are disclosed and scrutinised as part of that process.

Private and PE-backed companies. Here fees are typically agreed between the board and the shareholders. In PE-backed businesses the investment agreement will often treat changes to director remuneration as a reserved matter requiring investor consent. Our guide to how private equity governance works explains reserved matters.

How Often Should Fees Be Reviewed?

Many listed boards review non-executive fees every year or every two to three years, often aligned with the remuneration policy cycle. More frequent reviews keep fees in line with the market in smaller steps; less frequent reviews can lead to larger catch-up increases that are harder to explain to shareholders.

Whatever the cycle, a review should also be triggered by a material change: a significant acquisition, a listing, a move into a regulated activity, a step change in the time required or a new committee structure. When the company is recruiting, the search itself provides fresh market evidence, and it is sensible to check the whole fee structure at the same time rather than paying the new director differently from existing ones.

Practice in Private and PE-Backed Companies

Benchmarking outside the listed market is harder because fees are rarely published. A few points help.

Use search market evidence. Current searches for comparable roles are often the most reliable guide, supplemented by the indicative ranges in our salary guide.

Account for equity. In PE-backed companies independent chairs and NEDs are sometimes invited to invest alongside management or the sponsor. That changes the overall package, and boards should be clear about how a co-investment interacts with independence. Our articles on whether NEDs can be shareholders and on NED share options explain the considerations.

Match fee to the role’s intensity. PE boards often meet monthly and expect more involvement than many listed boards. A fee benchmarked only against the base fee of a similar-sized listed company may not reflect the work.

Charities and the public sector. Charity trustees are usually unpaid, and payment needs proper authority. Public-sector and NHS roles are paid at rates set by the appointing body rather than benchmarked by the board. Our guide to the difference between a trustee and a NED covers the trustee position.

Tax and Expenses

Fees paid to non-executive directors are normally treated as employment income from an office, paid through payroll with tax and National Insurance deducted. Benchmarks should therefore compare gross fees. Reimbursement of genuine expenses is separate from the fee and should not be counted in the benchmark. Our article on whether NEDs pay National Insurance explains the treatment in more detail. This is general information, not tax advice.

Common Benchmarking Mistakes

• Choosing a peer group that is too small, too large or quietly adjusted to support a preferred outcome.
• Relying on survey data that is several years old.
• Benchmarking the base fee but ignoring supplements, or setting supplements as an arbitrary percentage.
• Comparing chair fees with NED fees rather than with other chair roles.
• Ignoring the company’s actual time commitment, which may be well above or below peers.
• Overlooking a cap on aggregate fees in the articles.
• Letting NEDs participate in decisions on their own fees.
• Leaving fees unchanged for many years and then making a large, hard-to-explain increase.

How We Help

When we run a search for a chair, NED or committee chair, we discuss the fee with the board at the briefing stage, drawing on what comparable roles are currently offered and accepted. If the proposed fee is likely to limit the field, we say so before the search starts rather than after. Our recruit a non-executive director page explains how a search works from brief to appointment, and our remuneration committee chair recruitment page covers the directors who usually lead this work.

Frequently Asked Questions

What is NED compensation benchmarking?
It is the process of comparing a company’s non-executive director and chair fees with those paid by a relevant peer group, so that fees are competitive, reflect the time and responsibility involved, and can be justified to shareholders.

Where can I find typical NED fee levels?
Listed company annual reports disclose actual fees, and several firms publish fee surveys. For indicative ranges across listed, private, PE-backed and not-for-profit boards, see our NED salary guide.

Who sets non-executive director fees?
It depends on the articles. Typically the board sets NED fees, within any shareholder-approved cap, while in Code companies the remuneration committee sets the chair’s fee. No director should decide their own pay.

Can NEDs receive share options?
The UK Corporate Governance Code says NED remuneration should not include share options or other performance-related elements. Private and PE-backed companies are not bound by the Code, but share options can still raise independence concerns.

How often should NED fees be reviewed?
Commonly every one to three years, plus whenever the role changes materially, for example after a large acquisition, a listing or a sharp increase in the time required.

Should committee chair fees be a fixed percentage of the base fee?
Not necessarily. Each supplement is better benchmarked against what comparable companies pay for that specific role and against the actual workload of the committee.