The cost-of-living crisis has rightly focused attention on the pay of those who are most vulnerable to inflation. These are not typically the Board Members who oversee the company: nonetheless Fidelio has seen a sharp increase in questions relating to Board remuneration. This is driven in part by the economic backdrop but also by the increasing amount of time Non-Executive Directors are contributing to the role, and heightened concerns about liability and reputational risk.
“You will get the behaviours that your reward system encourages”
- Prof. John Hunt, London Business School
For listed companies there is considerable guidance on how Non-Executive Directors are paid but the amount is clearly at the discretion of the company. For private companies, and in particular fast-growing companies, there is greater scope to structure Board compensation to underpin the success of the business. This includes addressing key questions such as:
How can compensation best be aligned with the interests of shareholders and broader stakeholders?
Should Board remuneration have a profit-linked component?
Should Board Members own shares in the company and how should they acquire those shares?
Getting remuneration and alignment right at Board level is something that is easily overlooked in the current environment. It is important for companies, whether listed or unlisted, to be able to attract effective and diverse Board Members. Fair and aligned compensation for Board Members is likely to (i) achieve access to a wider range of talent and (ii) ensure that the Board is providing effective oversight and challenge, as well as guidance and strategic direction.
In this Overture Fidelio explores key considerations in establishing Board remuneration. Click here to continue reading.