Methods of remunerating non-executive directors with shares
Methods of remunerating non-executive directors with shares

The following Share Incentives practice note provides comprehensive and up to date legal information covering:

  • Methods of remunerating non-executive directors with shares
  • Meaning of ‘non-executive director’
  • Methods of remunerating in shares
  • Option 1: Market purchase
  • Option 2: Allotment of shares for after-tax cash consideration
  • Option 3: Allotment of shares in consideration for services
  • Option 4: Phantom shares
  • Option 5: Grant of options
  • How are NEDs remunerated in practice?
  • Issues and considerations of remunerating NEDs using shares

Methods of remunerating non-executive directors with shares

Meaning of ‘non-executive director’

The general definition of ‘director’ is not exhaustive. The Companies Act 2006 (CA 2006) provides that the term director includes any person occupying the position of director, by whatever name called. Thus, it includes both executive and non-executive directors (NEDs).

Executive directors are generally authorised, either by the company’s constitution or by devolved authority from the board, to carry out the day-to-day operation of the company. As such, they usually have a full-time service contract.

NEDs generally:

  1. have no executive authority

  2. play a critical part in the corporate governance of the company, and

  3. are not employees of the company

This Practice Note looks at the different practical methods in which NEDs can be remunerated by reference to shares. However, before implementing any such arrangement, there are wide-ranging issues that the relevant company will also need to consider carefully. For further information on these issues, see Practice Note: Shares for non-executive directors—issues and considerations.

This Practice Note is not confined to NEDs in companies with a full listing on the London Stock Exchange. Where provisions only relate to such companies this will be indicated in the Practice Note.

Methods of remunerating in shares

Option 1: Market purchase

This is the most common and straightforward method for paying a NED in shares. Normally, it requires no constitutional amendments (which may be necessary for arrangements

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