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Although firms are increasingly complying with the provisions of the Combined Code, independent directors make up less than half of the board at more than one in ten (11 per cent) FTSE 100 companies and almost one third (29 per cent) of FTSE 250 organisations, according to research by Deloitte.

Change to the composition of boards has slowed and the number of non-executive directors appears to have stabilised, after five years of rapid growth following the Higgs Review.

The composition of the board has changed at 59 per cent of FTSE 350 companies in the past 12 months, compared to 68 per cent in the previous year and 76 per cent in the year before that. Deloitte believes that this slowdown in boardroom change is positive news, even if not all companies comply with the Code.

Carol Arrowsmith, head of remuneration at Deloitte, commented, “For a number of years many boards have had to dedicate more focus to process and compliance issues than might be considered desirable. They will welcome a period of relative calm in the world of corporate governance to allow them to bring leadership and strategy back to the top of the agenda.”

Diversity

A continuing area for concern, however, is the lack of female non-executive directors. There has not been a significant increase in the diversity of the board in large UK companies. The number of female FTSE 350 executive board members has increased slightly, from 3 per cent to 4 per cent, but there has been no increase in the number of female non-executives. This is despite the fact that the total number of non-executive directors has increased by more than 10 per cent in the past five years,” Arrowsmith said.

The increased responsibilities of non-executive directors has had a significant effect on fee levels which continue to increase at a higher rate than has historically been usual for these positions and are currently slightly higher than increases in executive salaries. Total fees in the past year grew by 7.3 per cent compared to 7.1 per cent last year.

Deloitte’s research suggests that companies are now reviewing fee levels much more regularly, often annually, compared with only every two, or in some cases three, years, although a review does not always result in an increase in fees. Companies are also now far more likely to conduct a thorough benchmarking exercise along similar lines to those carried out for executive salaries.

Growing degree of structure

Arrowsmith feels that fee levels will not continue to increase at this rate, but said it is not yet clear if increases will return to the 3 per cent to 4 per cent levels that were typical a few years ago. Although fewer companies are reporting difficulties in recruiting non-executive directors the complexity of the role will certainly not diminish and the demand for high quality individuals will continue.

One emerging trend is the growing degree of structure around how the fees are determined. Typically, there will be a basic fee and then additional fees for the chairmanship of committees or the senior independent director role.

The chairmanship of the audit committee tends to carry the highest additional fee, £15,000 in a FTSE 100 company and £7,000 in a FTSE 250 company. The chairman of the remuneration committee may get additional fees of £10,000 and £6,000 in FTSE 100 and 250 organisations respectively.

The survey found that the average basic fee for a non-executive director in a FTSE 100 company is £52,750 compared with £38,250 in a FTSE 250 company. Typical fees for a non-executive chairman will be between 35 per cent and 50 per cent of the salary of the top full time executive in FTSE 100 companies and between 25 per cent and 35 per cent in FTSE 250 companies. This has not changed since last year.

The appointed senior independent director is likely to receive an additional £10,000 in a FTSE 100 company, but only £5,000 in a FTSE 250 company.

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Related links

• Deloitte