NED Share Ownership
Following the Financial Reporting Council’s (“the FRC”) late-2025 clarification on the use of shares to pay non-executive directors’ (“NEDs”) fees, most companies have now reported under the updated guidance. We look at how market practice is developing.
What has happened
In updating the UK Corporate Governance Code, the Financial Reporting Council clarified that boards should have the flexibility to pay NEDs a portion of their fees in shares, provided they are transparent about the rationale and approach. The principle that any remuneration framework must preserve independence remains; therefore, the FRC’s position that NEDs should not participate in performance-related share schemes is unchanged.
Institutional investors and proxy agencies remain broadly supportive of NED share ownership: the Investment Association’s Principles of Remuneration encourages independent NEDs to align their interests with shareholders by owning shares, noting that a portion of the NED fee could be paid in shares purchased at market rates.
Therefore, the clarification does not change the governance context and, in isolation, is unlikely to drive a wholesale shift in company practice. However, it does provide a useful prompt for boards to consider NED remuneration as part of their next formal policy review.
Market context
Most FTSE companies still pay NED fees entirely in cash. Both part-payment in shares and formal shareholding guidelines remain concentrated at the top end of the market:
| Segment | Prevalence of (part) payment in shares |
Prevalence of NED shareholding guidelines |
|---|---|---|
| FTSE 30 | 17% | 50% |
| FTSE 100 | 8% | 32% |
| FTSE 250 | 1% | 7% |
| FTSE Small Cap | 2% | 7% |
Where shareholding guidelines exist, most apply to all NEDs and are typically set at one times the base fee with a three-to-five-year period to comply. In some cases, there is a linkage between part-payment of fees in shares and a shareholding guideline, with some companies paying in shares until a minimum ownership is achieved. One company even extends the guideline for one year following stepping off the Board (similar to the post-termination guidelines commonly used for executive directors).
The wording used to describe the strength of the guideline varies: ‘required’ (i.e. suggesting mandatory) is used by 11 companies, ‘expected’ by 10, and ‘encouraged’ (suggesting no obligation) by 15.
In recognition of the challenge of paying NEDs directly in shares, the most common delivery mechanism is for NEDs to be paid in cash with an expectation that they buy shares themselves.
What does this mean for boards
The current position does not call for an immediate response. The FRC’s clarification has not materially changed the underlying governance expectations, and market practice has not moved significantly in response. Boards, therefore, do not need to treat this as an issue requiring out-of-cycle policy change.
However, whether the principle is one to explore should be considered as part of the next scheduled Policy review. The decision on whether to introduce either of these approaches starts with a philosophical question for boards, that is whether they consider that any arrangement which creates a personal interest in the share price creates a tension with a NED’s fiduciary duty to shareholders, in particular exercising independent thought and judgement.
Ellason commentary
The data suggests that, despite the FRC’s clarification, there has not yet been a significant shift in market practice. Most companies continue to pay NED fees wholly in cash, and formal shareholding guidelines remain more common among larger listed companies than across the wider market.
The slow pace of change may reflect that this is unlikely to be a binary question of whether companies support NED share ownership; rather, different approaches may reflect each company’s governance context, existing ownership levels, and shareholder structure.
The increasing demands and responsibilities placed on NEDs may prompt boards to undertake a broader review of NED remuneration, creating an opportunity to consider the role that payment in shares and shareholding guidelines could play within the overall remuneration framework.
For more information, please contact your regular Ellason contact, or email us at: info@ellasonllp.com