Activist investor Cevian Capital is calling for a substantial increase in remuneration for non-executive directors at UK-listed companies, arguing that better pay and greater share ownership are needed to attract stronger boardroom talent and help reverse the decline of the London equity market, according to a report by the Financial Times.
Cevian, which holds investments including stakes in Smith & Nephew and Pearson, wants UK companies to increase non-executive director (NED) compensation and give directors greater exposure to the performance of the businesses they oversee.
The investor argues that higher remuneration would allow UK-listed companies to compete more effectively for experienced directors internationally, while share-based awards would give board members a stronger financial incentive to improve long-term corporate performance.
Harlan Zimmerman, a senior partner at Cevian, described improving the performance of UK companies as the most effective way of supporting both the domestic equity market and wider economic growth.
The proposals come as London continues to face pressure from a combination of takeovers of UK-listed companies and persistent outflows from domestic equities. Cevian believes stronger boards could play a role in making UK companies more competitive and improving the attractiveness of the market to investors.
The average FTSE 100 non-executive director currently receives around £80,000 a year before tax, according to research by Cevian and advisory firm WTW. Directors typically attend around six board meetings annually, although Cevian argues that the role has become considerably more demanding as regulatory and governance responsibilities have expanded.
Under its proposals, total annual compensation would rise to about £160,000, including shares that directors would be required to retain for five years. Companies could potentially increase the package to £240,000 by awarding three years of share-based compensation at once, with the awards then vesting progressively over the following three years.
Cevian points to a significant international pay gap. Non-executive directors at companies in the S&P 500 receive the equivalent of about £229,000 on average, almost three times the FTSE 100 level, with roughly two-thirds of that compensation delivered in shares.
Swiss companies also offer substantially higher remuneration. Non-executive directors at Switzerland’s 20 largest companies receive around 90% more than their counterparts at leading UK companies, despite the median Swiss company being smaller by market capitalization.
For Cevian, the argument is partly driven by its own investment strategy. The firm wants a broader pool of large, well-managed UK companies in which to deploy capital.
But Zimmerman stressed that higher pay should be accompanied by greater responsibility rather than simply increasing compensation for the existing role. Cevian wants boards to devote more time to improving operational performance, identifying growth opportunities and challenging management, rather than focusing disproportionately on regulatory and compliance requirements.
The investor also highlighted concerns over “overboarding”, whereby directors hold seats on multiple public company boards. Its analysis identified 47 FTSE 100 non-executive directors holding four publicly listed board positions and another eight sitting on at least five.
Board Intelligence chief executive Pippa Begg said relatively low remuneration could contribute to the problem, with directors taking on multiple positions to generate sufficient income. She also argued that the pay gap can make board roles less attractive compared with opportunities in private equity.
Cevian said its proposals followed discussions over the past year with other institutional investors and UK company chairpersons.
David Schwimmer, chief executive of London Stock Exchange Group, has backed the recommendations, arguing that companies seeking to compete internationally need boards with comparable global talent and remuneration structures.
