Across listed, unlisted and not-for-profit companies, many nuances need to be considered when setting market competitive NED packages, requiring expert knowledge and tailored approaches to market data.
GRG Remuneration Insight 178
23 June 2025
NED Pay: Simpler but Also More Unique
Pay for non-executive directors (NEDs) is less complex than pay for executives mainly because NEDs should not be paid incentive remuneration (although appropriately structured equity is well supported) – see ASX Corporate Governance Council’s “Principles & Recommendations”. Yet it is an area with many nuances that need to be considered when setting market competitive NED board packages, which requires expert knowledge and tailored approaches to market data. Understanding variations in workloads is often key to assessing and setting NED remuneration, in relation to committee work, and when comparing practices across listed, unlisted and not-for-profit NED remuneration.
Determining Current Pay
There can be several elements that form part of NED remuneration packages including:
- Main Board Fee,
- Superannuation – not legally required for some NEDs e.g., those who are overseas residents,
- Committee Fees – practices vary across companies. While some companies do not provide committee fess when the workload is shared evenly, others choose to pay a fee to the Committee Chair when they carry the main committee workload, while larger companies tend to pay committee fees to both members and chairs of the main committees.
- Equity Grants – provide “skin-in-the-game” and is usually specially designed for tax advantages while preserving independence,
- Benefits such as free private travel for NEDs and their relatives, for those working in the airline industry for example, and
- Travel allowances for NEDs who need to travel long distances to attend to Board matters e.g., for NEDs located overseas – this is not a common practice but does occur.
Other items that have been provided in the past but are now rarely, if ever, used include:
- Superannuation contributions in excess of that required under the Superannuation Guarantee legislation, and
- Company paid retirement benefits which are subject to a statutory limit under the Corporations Act, if shareholders have not approved a higher amount.
It should also be noted that on occasion a NED may be paid for work in addition to board work where they are bringing a specialised skill set to the table, e.g., a NED who is a solicitor carrying out legal work or a NED who is an expert in the analysis of core drilling results. As such fees are not for board work and so they do not constitute part of NED remuneration.
Comparing NED Remuneration to the Market
Main Board Packages
It is widely accepted in relation to executive remuneration, the best way to approach benchmarking is by reference to the total remuneration package, rather than assessing each element separately, as doing so may lead to illogical or inappropriate outcomes. For NED remuneration, Main Board Packages (MBPs) should be used to benchmark against market practice. MBPs are composed of all elements of remuneration paid to NEDs for board work over a financial year (i.e. the sum of main board and committee fees, superannuation, benefits, equity, etc). When MBPs are used the various and often divergent pay practices of companies are brought onto a standard footing to ensure like-for-like comparisons. If benchmarking were to be undertaken with a focus on board fees only, then the results would understate market practice for MBPs as many elements of NED pay would be left out.
It should also be noted that if market competitive levels for each remuneration component were added together it is likely that the resultant MBPs for the NEDs of that company would be higher in the market than was intended.
Managing Competitiveness and Committee Fees Impact
For large companies in the ASX300 and beyond there seems to be an expectation that NED fee policies will focus on the median (P50) of competitor market remuneration practice. For smaller companies there may be more flexibility particularly when equity grants are used to preserve cash for the company.
By benchmarking the MBP, the impact of any paid committee fees will also be considered ensuring that total remuneration packages fall where intended in the market. Companies that wish to pay committee fees will need to use judgement when setting their remuneration practices to ensure reasonable outcomes compared to the market. The objective is generally for the middle NED MBP to fall at the desired market position, with variations for others being due to differences in workloads/committee fees. Of course, the levels of committee fees should be reflective of the relative workloads of the NEDs; committee fees primarily recognise differences in workloads on a given board, which tends to become more apparent as board size increases.
Workload
Workload and fees are often analysed on a “days of work” and “per-diem” basis to neutralise significant variations that can arise between, for example, ASX board work, and board work in a not-for-profit.
Aggregate Fee Limits
Aggregate fee limit (AFL) or the fee cap is the maximum amount of fees that may be paid to all NEDs in a financial year. For ASX listed companies this amount may only be increased with the approval of shareholders. The AFL covers all elements of remuneration for NEDs except grants of equity (shares, rights and options) that have been separately approved by shareholders. Regularly seeking shareholder approval for modest increases in AFLs generally avoids the strong negative reaction that can come from shareholders when large increases are sought.
Equity Grants
Equity grants are generally supported by various stakeholders provided that they are not subject to vesting conditions or an “Exercise Price”. Having NEDs set performance vesting conditions for grants of equity to themselves is seen as undesirable as it may lead to a conflict of interest when setting performance vesting conditions for executive long term incentive grants, while service testing impedes turnover. When provided, equity grants tend to replace market competitive fees that would otherwise be payable in cash i.e. are not in addition to competitive benchmark MBP levels. NED equity is tax effective, enables them to build equity stakes in the company while managing insider trading issues and doubling the dividend stream they would otherwise earn.
Special Exertion Fees
From time to time companies may engage in or be subject to non-regular activities such as takeovers or mergers that involve considerable additional board work from NEDs. Clearly such additional work is not intended to be covered by normal NED remuneration and if significant would warrant additional remuneration. If the additional remuneration could be paid within the shareholder approved AFL, then it is a matter for the board to decide upon. However, if the additional payment would mean that the AFL would be exceeded then shareholder approval will need to be obtained before payments above the AFL may be made.
Conclusion: proactively manage your NED remuneration
NED remuneration needs to be proactively managed to ensure that it remains competitive and structured to meet the needs of the calibre of NEDs required, and expectations of stakeholders. Regular market benchmarking provides a sound starting point as it will identify any changes that should be considered. Most boards undertake a major review every 2–3 years, with minor sense-checking and data reviews in between, unless a major change in organisation circumstances arise. NEDs also need to be able manage the inherent conflict of interest in governing board remuneration; see our Insight 149, Boards Must Receive Fee Recommendations.
