Non-Executive Director Pay in Shares: What Changed

On 5 November 2025 the Financial Reporting Council (FRC) updated its Corporate Governance Code Guidance to clarify how non-executive directors (NEDs) can be paid in shares. Boards may pay part of a NED's fee in shares to build alignment with shareholders, provided the rationale and any restrictions are disclosed. Performance-related pay — share options with a meaningful exercise price — remains off the table, because tying a NED's income to share performance can compromise the independence their oversight role depends on.

Key takeaways

• The FRC updated Section 5 (Remuneration) of its Corporate Governance Code Guidance on 5 November 2025, clarifying that boards may pay NEDs partly in shares provided the rationale and any restrictions are disclosed, according to the Financial Reporting Council, 2025.
• Performance-related NED pay remains inappropriate, including share options with a meaningful exercise price, because it risks compromising the independence a NED needs to challenge management, according to the FRC's guidance.
• Share-based NED fees are still rare in practice: five FTSE 150 companies currently include shares as a component of NED fees, according to Spencer Stuart's 2025 UK Board Index.
• The average NED base fee across the FTSE 150 reached £80,888 in 2025, up 3% on 2024, according to Spencer Stuart's 2025 UK Board Index.
• This is guidance, not a new rule. It works through the Code's comply-or-explain mechanism, which boards already use routinely — a quarter of a 100-company sample disclosed at least one departure from a 2018 Code provision, according to the FRC's Annual Review of Corporate Governance Reporting, November 2025.

What did the FRC change on 5 November 2025?

The FRC updated the remuneration section of its Corporate Governance Code Guidance to remove ambiguity around a practice some boards had already been considering: paying part of a non-executive director's fee in shares rather than cash. The guidance states that boards "may pay part of their NEDs' fees in shares, provided the rationale for doing so and any restrictions on the shares are clearly disclosed," according to Slaughter and May's summary of the update, published 18 November 2025. The stated purpose is to let companies "encourage non-executive directors to build personal shareholdings to foster alignment with shareholders and reinforce long-term commitment," according to the Financial Reporting Council, 2025.

Crucially, this is guidance on the Code, not a change to the Code's text. As FRC chief executive Richard Moriarty put it: "The UK Corporate Governance Code's comply or explain approach gives companies the flexibility to adopt governance practices that work for their specific circumstances and is a key asset for the UK in terms of its international competitiveness," according to the Financial Reporting Council, 2025. The update simply spells out how a board can use that flexibility for NED pay without falling foul of the independence principle.

Why is performance-related NED pay still considered inappropriate?

Because a NED's core job is to scrutinise executive performance and challenge management on the board's behalf — a task that gets harder if the NED's own income rises and falls with the same share price the executives are managing. Provision 34 of the UK Corporate Governance Code has long held that NED remuneration should not include share options or other performance-related elements, a principle consistently applied across UK boards for this reason. The FRC's new guidance reaffirms that position directly: where a company does offer NEDs options or similar rights over shares, they "should not be performance-related and should not have a meaningful exercise price," because that could impair independence.

A fixed share award sits on the other side of that line. It gives the NED skin in the outcome without linking their personal pay to short-term share-price movement, which is why the FRC treats it differently from options — provided the board discloses why it is doing this and what restrictions apply.

What must a remuneration committee disclose if NEDs are paid in shares?

At minimum, the rationale for using shares and any restrictions attached to them, per the FRC's guidance. In practice, Slaughter and May's analysis sets out several further steps a remuneration committee needs to work through: confirming the remuneration policy already permits share-based NED pay (and seeking shareholder approval if it doesn't), tracking how much of the company's share allotment authority the award uses up, and addressing how any tax liability on the shares will be met, including arrangements to sell shares during permitted windows outside close periods.

ZEDRA's Nicola Brown, Client Director and Head of Incentives, adds that companies should decide upfront how any minimum shareholding requirement will be monitored and how sale restrictions will be documented with each director, rather than leaving those details to be worked out later. The Investment Association's own Principles of Remuneration guidance takes a similar line, encouraging "independent NEDs to align their interests with those of shareholders by owning shares in the company," while maintaining that performance-related pay remains inappropriate for NEDs, according to Norton Rose Fulbright's summary of the IA's update, published 13 November 2025.

Is NED pay in shares already common practice?

Not yet, in absolute terms. Five FTSE 150 companies currently include shares as a component of NED fees, according to Spencer Stuart's 2025 UK Board Index — a small fraction of the index, even as average pay continues to climb: the average NED base fee across the FTSE 150 reached £80,888 in 2025, up 3% on 2024, per the same report. The FRC's clarification does not create a new entitlement; it removes uncertainty for boards that were already weighing the option.

What the guidance does confirm is that the comply-or-explain mechanism it relies on is well exercised, not theoretical. In the FRC's most recent 100-company sample, a quarter of companies disclosed a departure from at least one 2018 Code provision — most commonly on audit committee composition, chair independence or tenure — according to the FRC's Annual Review of Corporate Governance Reporting, published 13 November 2025. Boards are used to explaining departures from Code provisions; NED share pay is simply a new area where that explanation is now expected.

What should a NED weigh before accepting shares as part of their fee?

Liquidity and timing matter more than they might for an executive. A NED typically sits on several boards and cannot always choose when to sell, since dealing is restricted during close periods and any disposal has to be arranged around them — which is why Slaughter and May flags tax funding on share sales as a practical sticking point, not a footnote. A NED should also expect the board to document, in the annual report, why shares rather than cash were used and what restrictions apply, since that disclosure is now the condition the FRC's guidance attaches to the arrangement.

The independence question is worth asking directly, even where the structure is a straightforward fixed award: does holding shares change how comfortable the NED feels raising an unpopular view in the boardroom? The FRC's answer is that a disclosed, non-performance-related award should not — but the guidance places the judgement, and the disclosure, with the board and the individual director, not with a fixed rule.

In summary

The FRC's 5 November 2025 guidance update confirms that boards may pay part of a NED's fee in shares to build shareholder alignment, as long as the rationale and any restrictions are disclosed, while performance-related NED pay — including options with a meaningful exercise price — remains inappropriate because it can compromise independence. The practice is still uncommon, but remuneration committees now have a clearer basis to consider it, and NEDs a clearer basis to weigh what accepting it would mean.

For the wider governance calendar this guidance sits within, see what applies now under the UK Corporate Governance Code, and for how independence itself is defined and tested, see independent director vs non-executive director. More on governance developments like this is available on the Governance Intelligence hub.

Notes

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This article is a general explainer of FRC guidance, not legal advice. For the authoritative text, see the FRC's Corporate Governance Code Guidance.