How to Build a Defensible Non-Executive Director Remuneration Framework for Your Remuneration Committee

A remuneration committee can have reliable market data and still struggle to justify a non-executive director (NED) fee recommendation. The problem is often not the proposed amount. It is that the committee cannot clearly show why certain companies were chosen as peers, how differing board responsibilities were assessed, or how the recommended fees fit within the organisation's governance requirements.

A defensible NED remuneration framework creates a repeatable process for answering those questions. It should work when fees increase, when they remain unchanged and when shareholders ask why the board has taken a different approach from its peers.

What makes a NED remuneration framework defensible?

The framework should demonstrate four things: that market comparisons are relevant, responsibilities have been assessed consistently, financial and governance constraints have been considered, and the committee has retained a clear record of the evidence behind its recommendation.

It does not require every director to be paid at the market median. An organisation may reasonably position fees below or above the median if its decision reflects differences in complexity, responsibilities and recruitment needs.

Start with a clear NED remuneration policy

A useful policy states what the organisation is trying to achieve. Most boards want fees that attract and retain suitably experienced directors, recognise their time and responsibilities, and preserve independent judgement. The policy should also specify how often fees are reviewed and which market reference point is normally used.

For example, a board might adopt the following position:

The organisation aims to position ordinary non-executive director fees around the median of a relevant Australian-listed company peer group, with adjustments considered for exceptional governance complexity, committee responsibilities and director recruitment needs. Any proposed deviation must be supported by documented evidence and considered against the approved aggregate fee pool.

This is an illustrative policy, not a prescribed ASX rule. Its value lies in giving future remuneration committees a consistent basis for decisions rather than starting again with each annual review.

Choose peers that can withstand scrutiny

A peer group should reflect the market from which the organisation recruits directors and the governance demands those directors face. Market capitalisation is relevant for ASX companies, but it is rarely sufficient on its own.

Consider revenue, assets, industry, international operations, regulatory obligations, workforce scale and business transformation. An ASX-listed financial services organisation may have a different oversight burden from a similarly sized industrial company, while a company undertaking a significant acquisition may impose temporary demands not reflected in its normal operating scale.

Rather than selecting only the highest-paying companies, retain a table that explains why each peer was included and any material difference that may affect its relevance.

A peer group of approximately 10 to 20 thoughtfully chosen organisations can provide a practical starting point, although the appropriate number depends on available comparators. Do not disguise a thin sample by describing it as a broad market benchmark.

For more on interpreting disclosed fees, see our companion article, Non-Executive Director Remuneration Benchmarks for ASX Companies: What Peers Are Paying and Why.

Make sure the market data compares like with like

Published annual report remuneration tables may include partial-year appointments, superannuation, committee fees and other benefits. Use annualised fee schedules where possible rather than assuming a director's disclosed total represents the ongoing base fee.

Separate ordinary NED fees from board chair fees. Benchmark committee chair and membership fees as distinct elements, and record whether the board chair receives an inclusive fee. Check superannuation and other inclusions consistently so that the same dollar figure means the same thing for every peer.

The final analysis might show the 25th percentile, median and 75th percentile for each fee component. These statistics are reference points, not automatic recommendations. Where a peer is an outlier, explain its effect and why it was retained or excluded.

Translate board responsibility into a transparent fee structure

A clear framework usually starts with the ordinary NED base fee. It then identifies whether the board chair receives a higher inclusive fee and whether committee chairpersons or members receive additional amounts.

The committee should avoid using attendance alone to determine fees. Preparing for meetings, reviewing complex papers, participating in stakeholder discussions and managing demanding governance issues can involve substantial work outside scheduled board sessions.

The more useful questions are whether responsibilities are materially different, whether the difference is ongoing and whether the fee premium is consistent with the agreed policy.

Consider this illustrative structure:

These are hypothetical figures for modelling, not actual market rates. The board chair fee is assumed to be inclusive of committee participation, and premiums are paid only where the policy specifies eligibility.

Test the complete annual fee pool, not just individual fees

Suppose the organisation has one independent chair and four ordinary NEDs. It pays one audit and risk chair premium, one remuneration committee chair premium and three committee member premiums.

The illustrative total is:

$180,000 + (4 × $90,000) + $18,000 + $12,000 + (3 × $6,000) = $588,000 annually.

Assume the shareholder-approved NED fee pool is $650,000 on a comparable cost basis. That leaves $62,000 of headroom, before any unmodelled costs or changes.

A committee could decide that this headroom is insufficient if it anticipates recruiting an additional director or increasing governance demands. A recommendation to increase individual fees therefore needs to consider the full board structure, not merely an attractive median.

For ASX-listed entities, Listing Rules 10.17 and 10.17A are particularly important for the aggregate NED fee pool and related approvals. Their detailed treatment of directors' fees and exceptions should be checked before proposing or implementing changes. Ordinary board and committee service should not simply be characterised as special duties to avoid pool requirements.

Protect independence and manage conflicts

NED fees are not the same as executive incentives. The ASX Corporate Governance Principles and Recommendations distinguish the two and discourage performance-based remuneration for NEDs because it can affect independent judgement. Fixed fees, superannuation and appropriate non-cash arrangements are more consistent with the usual NED model.

The committee should also document how it manages the inherent conflict involved when directors consider their own fees. Relevant controls might include independent benchmarking, appropriate exclusions from deliberations, documented advice and following the organisation's constitution and applicable legal requirements.

The ASX website identifies the fourth edition of the Corporate Governance Principles and Recommendations as the current version as at October 2026. Committees should verify the current guidance when finalising their recommendations.

What a defensible remuneration committee paper should contain

The paper needs enough detail to support a decision without overwhelming directors with raw data.

Present at least two credible alternatives to the preferred recommendation. For example, keeping fees unchanged may be appropriate when market differences are small, while a targeted committee premium may be more defensible than a blanket increase.

Sample recommendation wording

The committee recommends increasing the ordinary NED fee to $95,000 annually, effective from the next review period, subject to applicable approvals. The proposed fee reflects the organisation's position against a defined peer group, increased governance responsibilities and the current remuneration policy. The revised total board cost remains within the approved aggregate NED fee pool on the assumptions documented in this paper.

This example shows how a recommendation connects the number to evidence and constraints. Actual approval wording should reflect the organisation's specific circumstances.

Keep a decision trail that survives committee membership changes

A defensible process should not depend on one person's spreadsheet or recollection. Store the peer list, source annual reports, normalisation adjustments, fee models, committee papers and final resolutions together. Record why particular data points were excluded and why the recommendation differs from the policy benchmark, if applicable.

This is particularly useful when a new committee chair arrives, shareholders question a change, or an adviser reviews the framework several years later.

Remuneration committee self-check

Before recommending new fees, ask:

• Can we explain our remuneration philosophy in plain English?
• Do we have documented reasons for selecting each peer?
• Are we comparing chair, ordinary NED and committee fees separately?
• Are all benchmark figures consistent for year, superannuation and fee inclusions?
• Have we considered time commitment, responsibilities and governance complexity?
• Have we modelled the complete board cost and fee-pool headroom?
• Have we considered independence, conflicts and approval requirements?
• Does the committee paper explain alternative options and why one was selected?
• Could another committee member reproduce the analysis next year?

A strong NED remuneration framework is not one that always produces a higher fee. It is one that makes decisions consistent, evidence-based and explainable, even when the preferred outcome is to leave fees unchanged.

For further reading, consult the ASX Listing Rules, ASX Corporate Governance Principles and Recommendations and ASIC guidance on company rules and constitutions.

Need an independent board remuneration review? Contact Remunera for ASX peer benchmarking, director fee modelling and a committee-ready remuneration recommendation.