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Independent directors miss out on share-based fees

Independent directors in Europe are not getting the same rewards as their US counterparts.

Independent directors in the UK and Germany receive similar cash payments to their US counterparts but miss out on stock or share based fees, according to research from private equity firm 3i and Top Pay Research Group.

The Independent Chairman and Non-Executive Director Survey reveals that while annual cash fees for independent directors of major quoted companies in the US, UK and Germany are similar, typically ranging from about £25,000 to £40,000, US directors almost double their compensation with stock or share based fees.

Companies in the UK are however moving towards the American system of awarding part of independent directors fees in shares or options. In 1997, the research found that just 3 per cent of UK companies offered shares but predicted that this figure would reach 30 per cent by 2001. This has now been reached in companies with a turnover of up to £30m.

The report also highlighted a growing divide in the remuneration of independent and executive directors in Europe. They received annual increases of 4-6 per cent and 8-10 per cent respectively last year.

The research was based on the findings of a survey of independent director appointments in Europe. Those surveyed were from a variety of companies with a turnover of £10m to £1bn. More than 50 per cent of those surveyed were from public companies.

The aim of the research was to evaluate the personal views of independent directors on issues such as their power to impose remuneration discipline, their effectiveness at board meetings and their views on the importance of corporate governance requirements.

The findings highlight concerns that independent directors being stretched more and more, particularly where they have to serve as company chairman and are doing so for fees that appear low compared to executive and consulting call-out rates and US compensation figures.