The Key Differences: Executive Directors and Non-Executive Directors
Many executive directors view moving into the non-executive sphere as the obvious progression from full-time corporate employment, but their understanding of the key differences between the roles can often hamper their transition. From responsibilities and legal duties, to time commitment and remuneration, the two roles have significant differences, and learning how to translate executive skills into a NED role, alongside gaining new knowledge and behaviours is critical to successfully forging a non-executive career.
Executives and non-executives hold very distinct roles within a company's board of directors, each with its own set of duties and functions. Taking a high-level view, executive directors are actively involved in managing the company, making operational decisions and driving day-to-day activities, while non-executive directors provide an independent, external perspective, offering guidance, oversight, and strategic input without being directly involved in daily operations. It is important to note that not all executive directors within a company will sit on the board, with NEDs making up a significant number of the board members. They offer balance to the executive board, and provide objective scrutiny and constructive advice on the activities and strategy of the company, taking a leading role in corporate governance.
We’ll examine the main areas in which the roles of executive and non-executive directors have clear differences and also examine which skills and experience can be carried over from one role to the other.
The critical differences between directors and non-executive directors
Involvement in Management
Executive directors are typically part of a company's management team and are actively involved in the day-to-day operations of the organisation. They may hold titles such as CEO (Chief Executive Officer), CFO (Chief Financial Officer), COO (Chief Operating Officer), and lead the delivery of their respective teams’ duties and performance. Conversely, non-executive directors are not involved in the day-to-day management of the company. They are required to provide independent input and guidance and offer an external perspective to a company’s performance and strategy. Non-executive directors may serve on multiple boards for different companies and bring diverse expertise to each company.
Decision-making is another area in which executive roles differ from NEDs, as they play a direct role in decision-making processes and are responsible for implementing strategies and policies, with their decisions having a direct impact on the company's operations. NEDs, on the other hand, provide guidance, contribute to strategic discussions, and offer an independent viewpoint but do not have the same hands-on involvement in operational decisions or activities. Their involvement in decision-making is primarily to advise the executive board members and provide helpful input which can be utilised to implement robust strategies.
Executive directors generally command high wages, reflecting the full-time nature of their role, deep experience and their being responsible for successful operation and performance of the business. NEDs are typically paid less than executives as most non-executive roles require a commitment of only a few hours per week, and the impact of the role is less crucial to the immediate stability and success of a business. It is worth noting that many NEDs hold a number of board level roles, maximising their earning potential.
Executives are almost always employed on a full-time basis, and are predominantly focused on managing the company's operations, and they may have a more demanding schedule, with the need to firefight critical situations. While NEDs are expected to attend board meetings and committee meetings, their time commitment is typically far less than that of executive directors. They contribute by providing insights, oversight, and strategic guidance and will rarely be called upon to deal with time-sensitive critical situations or work more hours than agreed upon appointment.
One of the most important differences is that of independence, which is a key attribute of NEDs. They are expected to bring an external, unbiased perspective to board discussions and decision-making, contributing to effective corporate governance and promoting the best interests of shareholders. Executive directors are employees of the company and may have greater personal and professional ties to its success. Their perspective is often more aligned with the company's internal interests and success, rather than that of its wider stakeholders.
Executive Directors bear a higher level of responsibility for the company's performance and are directly accountable for its successes and failures, unlike Non-Executive Directors. While they share in the overall responsibility for the company's success, NEDs' accountability is more focused on providing oversight, strategic guidance, and ensuring the company is being run in the best interests of shareholders. It should be noted that non-executives and executives have the same legal responsibilities and possible repercussions with regard to financial and fiduciary matters.
Roles And Responsibilities
The exact roles and responsibilities of any executive or non-executive director will reflect the particular organisation in which they work. However, there are a number of responsibilities that each of the roles demands, regardless of the size, sector or structure of the organisation.
- Decision-making regarding operational activities
- Setting, measuring and monitoring operational goals and KPIs
- Planning and implementing business strategy for success
- Managing day-to-day operations
- Overseeing staff, specifically within the department they lead
- Reviewing financial information and reports
- Managing operational budgets
- Developing policies and procedures and promote adoption
- Managing relationships with external stakeholders
- Providing constructive challenge to the executive team
- Offering strategic advice and guidance
- Supporting executive team in, though not directly influence, decision-making
- Overseeing governance
- Acting in the interest of shareholders
- Developing long-term strategy
- Managing financial risk
- Setting remuneration
- Appointing or removing executive directors
If you'd like to learn more about the roles and responsibilities of non-executive directors visit our blog.
Remuneration: how much do executives and non-executives get paid?
Executive directors generally command high wages commensurate with time commitment, their position in the upper tier of a company’s structure and deep experience and expertise (it is rare for inexperienced professionals to be appointed as executives). The average executive salary in the UK is approximately £63,000 for unlisted companies and SMEs, with FTSE 100 executives receiving hundreds of thousands of pounds in their executive board roles.
The question of average NED remuneration is much more complicated with factors such as time-commitment, sector and size of company creating a much greater relative variation than for executive remuneration. Experience also has a larger bearing on non-executive pay - those in their first NED roles will be able to command much less than those with multiple NED roles under their belt. FTSE 100 NEDs receive on average approximately £70,000, with SMEs remunerating their non-executive directors at anywhere between £15,000 and £30,000. Less mature companies will offer less pay still and will often remunerate NEDs via equity or a blend of equity (in shares) and cash, giving non-executives an even greater vested interest in the long-term success of the company.
It’s important to note that a non-executive role can be a great way to supplement income for professionals looking to reduce their executive commitment, or as part of a wider portfolio of roles including board advisory, mentoring or fractional c-suite positions. You can learn more about the factors that govern non-executive pay here.
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