NED equity without strings. Why now?

What's happened?

On 5 November 2025, the FRC updated its Guidance to the UK Corporate Governance Code. Boards may now deliver part of independent NED fees in shares (or grant non-performance-linked rights to acquire shares) without compromising independence - provided there is no performance linkage and no “meaningful” exercise price. The long-standing prohibition on performance-related pay for NEDs remains intact.

Key points:

• The Guidance applies immediately to companies that apply the Code.
• It will influence remuneration decisions for the FY2025/26 policy cycle.
• Expect to see this first in reporting across the 2026 AGM season.

Why it matters now

This is a pragmatic clarification, not a rewrite of the Code. It removes ambiguity, gives boards latitude to use equity as a fee-delivery mechanism to align NEDs with shareholders and supports UK competitiveness, whilst keeping the bright-line rule that independent challenge must not be dulled by pay-for-performance.

Guardrails that matter

Red lines (don’t cross)

• Any performance linkage, KPIs or leverage.
• “Meaningful” exercise prices that create asymmetric upside.
• Structures that incentivise short-term decision-making or impair independence.

Amber lines (use sparingly, explain well)

• Nil-cost rights (optics; treat as an admin solution, not default).
• Post-cessation holding periods beyond 12 months (justify the horizon).
• New-issue shares if fee-cap headroom and dilution are sensitive.

Green lines (default stance)

• Fee deferral into purchased shares at market price.
• Simple holding through appointment with a short post-cessation tail.
• Plain-English policy rationale and clean dealing controls.

Possible architecture: three viable designs

• Independence narrative: Emphasise equal exposure, no performance conditions, no leverage, and holding requirements that prevent “pump-and-dump” behaviour.
• Legal plumbing: Check Articles fee-cap headroom; decide market purchase vs new issue; align the directors’ remuneration policy and Board/Committee terms of reference.
• Dealing discipline: Update the Dealing Code; map MAR closed periods; pre-clear windows (e.g. if quarterly delivery); automate sell-to-cover for tax/NIC.
• Accounting and payroll: Equity-settled fees recognised over service; keep mechanics consistent across the board; ensure RTI and withholding processes are frictionless.
• Investor stance: Some proxy frameworks remain wary of options for NEDs; if using nil-cost rights, potentially pre-engage and tighten lock-ups to preserve optics.

A balanced step forward

Done properly, equity for NEDs lengthens horizons, improves alignment signals and helps recruit the people you actually want on the Board, without blunting their ability to challenge. It’s not a loosening of standards; it’s a modernisation of approach. The discipline still bites where it should: no performance pay, no meaningful exercise price, no structures that skew incentives. The centre of gravity remains independence and long-term stewardship.

Closing thoughts

This clarification meets the market where it is: UK boards need independent, heavyweight thinkers who act like owners. Equity can be a clean, effective way to deliver NED fees - if you stay within the guardrails and keep the story simple. Defaulting to purchased or deferred shares, hard-wiring sensible holding behaviour and keeping MAR and Articles plumbing tight will help boards achieve alignment and preserve challenge -the balance investors and stakeholders expect.

At Burges Salmon, we help boards and remuneration committees navigate the evolving landscape of governance and reward. Our team combines technical expertise with commercial insight to design equity solutions that align with best practice, regulatory expectations and your business goals, whilst preserving the independence and challenge that underpin effective stewardship.