Monday, January 24, 2005

What is the right price for a Non-Executive Director?

The role of the Non-Executive has become increasingly important as, in many cases, they are the only Directors considered truly independent and, as a result, the only Directors that the shareholders and the regulators can rely on.

For this new-found role and responsibility, they are required to be:

  • more active,
  • more interventionist,
  • take more initiatives,
  • ask more questions,
  • probe more deeply,
  • more knowlegeable about their companies,
  • identify all the risks inherent in the businesses,
  • be more independent.

    These new responsibilities and this new prestige, they also have greater responsibilities and, as a consequence, greater accountability.

    As a result, they are required to spend far more time and resources to do their job better.

    Consequently, some basic commonly agreed terms and conditions and parameters for Non-Executive Directors would be welcome, including:

  • sitting on no more than 3 Boards at a time,
  • each Board would take between 50 and 60 days each,
  • not more than 6 to 8 formal Board meetings per year,
  • payment of no less than $75,000 per Non-Executive Director (approximately $1,500 per day),
  • out of pocket expenses incurred in executing their job would be paid by their companies,
  • expenses policy for the Board would be set by the Audit Committee,
  • the Audit Committee would be made up exclusively of Non-Executive Directors,
  • if terminated, their fees would continue to be paid for a period of six months.

    While these are only general parameters, and not necessarily comprehensive or complete, they are a good beginning to establish a group of professional Non-Executive Directors, which will be independent and have the time to execute their functions professionally and comprehensively.

    By Onésimo Alvarez-Moro