UK companies have adopted the practice to bring their remuneration of independent directors in line with US companies. A study of 1,200 directorships by Top Pay Research Group, in conjunction with 3i, found 18% of public companies now offer part-payment in shares or options.
This was below a rate of 30% predicted in a 1997 survey, but significantly higher than the 3% of UK companies offering share-based remuneration benefits four years ago.
The Independent Chairman and Non-Executive Director Study found while independent directors of public companies in the UK, US and Germany earned roughly similar salaries ranging from £25,000 to £40,000, US independent directors almost doubled remuneration packages with stock or share options.
The study predicted that by 2005, 50% of UK plc would offer share-based remuneration to independent directors. However European markets, particularly Germany, still lagged well behind.
Given the length of time spent at the office and their increasing responsibilities, independent directors are substantially underpaid compared to executives and consultants in the US.
Patrick Dunne, head of 3i independent directors’ programme, said company directors were doing a lot more than just corporate governance and were paying an integral role in companies’ development, while chairman of Top Pay Research Group Peter Brown said independent directors offered ‘outstanding value to most UK companies and their investors’.
The study also found remuneration packages for independent directors were increasing at a substantially lower rate compared with those of executive directors. During 2000, independent directors earned between 4% and 6% more, while executive directors earned between 8% and 10% higher.
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