Is non-executive director pay stagnating in Europe?

Non-executive director pay is stagnating in Europe, and this could easily spell trouble for a bloc trying to stand out as a governance leader. 

The information comes from a December 2023 Research report on the subject, carried out by ecoDA and Willis Towers Watson. 

It analyses data on non-executive remuneration from 185 companies across 15 European countries, and the results have raised questions over how much non-execs should be paid for European governance to remain competitive.

The underlying theme of the entire report is that non-executive directors now carry far more responsibility without an equal increase in remuneration. 

In the five years from 2018 to 2023:

• The average director’s and chair’s pay has increased by 16% and 17%, respectively.
• By contrast, CEO pay has increased by around 39% in the same period. 
• The increase in board fees for all of 2022 did not keep up with the aggressive inflation experienced in Europe that year. 
• Meanwhile, a corresponding survey of 278 non-executive directors found that 
  • 81% feel they are no longer adequately compensated for their role
  • An incredible 92% think that the complexity of board roles has increased since 2018. 
• On average, non-executive directors are paid the most in the UK, Spain and Switzerland (over €200,000 annually). 
• This is followed by Germany and Italy (€150,000-€200,000 per year) and then Finland, the Netherlands, Denmark and France (€100,000-€150,000 per year).

They signify that the payments for non-executive directors have less real-term value than they did five years ago. Pay has gone up, but not at the rate of inflation, and certainly not at the rate experienced by CEOs. 

The result is that non-exec directors’ roles have less value than previously. 

Combine this with the overwhelming belief among European non-execs that they have more responsibility from five years ago, and you have the ingredients for a classic scenario where a key group of professionals believe they are doing more for less.

The figures speak for themselves, and interpreting them depends on who the non-executive directors are talking to. 

They have a clear case for a grievance when comparing themselves to CEOs. Still, non-exec director pay increases have outpaced (but not too much) the pay for general employees (16% for directors vs 12% for employees). 

It speaks volumes to the complex nature of a directorship – with multiple colleague groups, including employees and CEOs – where they have to be careful about their audience when framing pay increases.

The belief that more responsibility has fallen on the shoulders of directors has a strong basis in reality, especially in Europe. 

The culture of more substantial regulatory pressure in Europe is widespread. You can see it in the new laws passed around reporting and ESG or others that suggest penalties, including jail time for directors who fail to act on suggestions of financial crime. 

Lawmakers want detail, accountability, and higher standards, and they want directors to take charge of providing these things.

The fundamental issue is that it could be a strategic risk.

Non-executive directors are brought onto boards for their unique expertise and experience in the field. This leadership has value. But if an entire continent cannot keep pace with that value, these unique individuals may look elsewhere for more competitive remuneration.

Europe is an economic powerhouse, but it is not the only one. 

Brain drain symptoms may take hold if the issue grows and separates European businesses from others – particularly in the US and Asia.

Obviously, there’s no universal next step. Director remuneration is a tricky business and very subjective. 

The sensible strategy would be for each company to ask whether it’s losing opportunities for great talent because the remuneration is low. If this is the case, maybe it’s something to consider changing for the sake of long-term corporate goals.