The UK’s largest listed financial firms have handed their board members a near-80% pay rise since 2009, prompting shareholder advisers and high pay campaigners to call for greater transparency on director fees.
Kalyeena Makortoff www.theguardian.com
Data gathered by the Guardian shows median pay for the three highest earning non-executive directors (NEDs) in each of the FTSE 100’s 17 financial firms surged from £90,700 in 2009 to £162,000 in 2019.
It means board members overseeing the UK’s largest banks, insurance and investment firms are earning 79% more than they did a decade earlier, despite being in part-time roles.
The largest increases have been at Lloyds Banking Group, where top NEDs are earning 257% more than in 2009; the London Stock Exchange Group, where there has been a 219% rise; and investment platform Hargreaves Lansdown, where fees have jumped 170%.
Headhunters said the rise was partly due to strict regulations introduced after the financial crisis, which meant NEDs had to keep closer tabs on operations, and take greater responsibility when things went wrong.
However, there is no precedent for UK NEDs having their pay docked for company misconduct. The insurance company Aviva is considering clawing back director pay after a row over how it announced a plan to cancel its preference shares in 2018, but blame for corporate failures has historically been laid at the feet of company executives.
It is also difficult to confirm directors’ workloads beyond what is disclosed in annual reports. Data suggests the highest-paid NEDs were attending just five more committee and board meetings a year in 2019 than they did in 2009, with the median number of meetings now sitting at 26 compared with 21 a decade earlier. The busiest among them sat through 48 meetings last year.
Reacting to the Guardian research, the High Pay Centre thinktank and influential shareholder adviser PIRC called for more detailed information about top earners like NEDs, whose ballooning fees have flown under the radar over the past decade.
While criticism has been aimed at multimillion-pound pay packages granted to company executives in recent years, the High Pay Centre said some board members were already earning more than 99% of the UK workforce, despite committing just a fraction of the hours.
“On balance, NED pay should require greater scrutiny, expecting the same rigour as executive pay and linked to demonstrable peer-group benchmarking in terms of fees, workload and meetings and items discussed,” said Francesco Navarrini, PIRC’s head of research.
He said companies should consider the pay ratio between NEDs and a company’s rank-and-file employees when considering further pay rises.
NEDs at financial firms could face greater pressure over fee transparency, since they are earning significantly more than their UK peers. On average, NEDs at financial firms are now earning £210,019 a year, which is more than double the average £99,139 earned by NEDs across all of the UK’s 150 largest listed firms, according to separate figures gathered by headhunter Spencer Stuart, which did not include median pay. While the median captures the middle of the range, the mean or average captures the typical figure when dividing fees equally between the entire group.
Luke Hildyard, the director of the High Pay Centre thinktank, said: “Paying out such lucrative sums for part-time work does create a damaging public perception of directorships and the way businesses are run, and potentially attracts people to the roles for the wrong reasons.”
“Pay for high earners, particularly in financial services, amounts to a significant cost for businesses, and there should probably be more detailed disclosure requirements on what companies are spending on those making six figures and upwards,” he added.
Board members are usually paid a so-called base fee but earn extra money for sitting on key committees that help decide executive pay, oversee financial reporting and governance. Both have jumped over the past decade, with base fees rising by nearly 20% to £75,000 on a median basis. Committee membership earned NEDs 55% more in 2019 than a decade earlier, while chairing those committees will mean pocketing 71% more in fees.
While none of the financial company NEDs from 2009 are still in their post – owing to a nine-year-limit – many serving on financial services boards have seen their fees double or triple during their tenure.
Among them are HSBC’s board member Heidi Miller, who has received a 204% pay rise from £206,000 to £627,000 over four years, after she was appointed as non-executive chair of HSBC’s North American operations – earning her an extra £431,000. Meanwhile, NatWest’s Frank Dangeard has seen his pay rise 91% from £138,000 to £264,000 since 2017, having since taken over as chair of the group’s investment bank NatWest Markets. However, NatWest does not break down his fees.
While a handful of NEDs included in the data do hold additional non-executive roles within their businesses like Dangeard and Miller, not all firms will disclose how much they are paid for each position, strengthening the argument for further transparency and more rigorous standards around NED fees.
Jenni Hibbert, a global managing partner at executive search firm Heidrick and Struggles, said directors put in more time than is disclosed in company reports. She estimated that NEDs for complex, FTSE 100 financial firms will usually be putting in about 80 to 100 days a year, including time spent preparing for meetings and getting to know the business.
“We have to remember that being a NED is a huge responsibility – the Companies Act does not differentiate between an executive and a non-executive director when it comes to fiduciary responsibilities,” Hibbert said.
“An NED is therefore required to take the same level of care as an executive, and they cannot do this by just turning up to board meetings – it takes many hours of reading, investigating and getting under the skin of things, to do their job well.”
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But with roughly 250 working days a year, NEDs are still working part-time while earning significantly more than most employees within the business.
“Many financial services firms paying six-figure sums to their NEDs will also have low-paid staff in branches, call centres or administrative roles struggling to make ends meet,” Hildyard said.
“The UK should be debating what we could do more generally to achieve a more even income distribution.”