Sectors we work in
The Financial Reporting Council FRC recent update to the UK Corporate Governance Code, encouraging listed companies to consider paying non executive directors NEDs in shares, has reignited debate about how boards attract, retain and reward independent talent. While the change applies formally to listed companies, it raises equally relevant questions for building societies and other mutuals.
Whilst you have no plans to issue shares you face many of the same pressures: heightened regulatory scrutiny, rising expectations of board capability, and a competitive market for experienced and diverse non executive talent. The question for mutuals is therefore not whether to follow the letter of the guidance, but how best to respond to its spirit.
In announcing the change, FRC chief executive Richard Moriarty emphasised flexibility, noting that companies should adopt “varied approaches to structuring remuneration, provided they preserve director independence and are transparent with shareholders about their decisions”. This reflects a broader evolution in governance thinking: independence and alignment are not mutually exclusive, and remuneration structures should be shaped by organisational purpose rather than default convention.
In listed companies, share based remuneration is intended to align NEDs with long term value creation. For mutuals, the same principle can be applied differently by anchoring board contribution to member value, governance quality and long term resilience, rather than share price performance.
Building societies operate in an environment of increasing scrutiny from regulators, members and the wider public. Boards are expected to demonstrate independence of thought, deep sector expertise and robust oversight of culture, conduct and risk, all while remaining demonstrably aligned to mutual purpose. At the same time, the role of the modern NED has expanded significantly. Digital transformation, operational resilience, cyber risk, consumer duty and cultural oversight now demand greater time commitment and specialist capability than ever before.
Despite this, NED remuneration across much of the mutual sector has remained relatively static, often anchored in precedent rather than evolving expectation. While mutuals operate in a distinct ecosystem, the market for governance talent is increasingly heightened, and expectations of professional contribution continue to rise.
As share ownership is not an option, what credible and modern alternatives exist for mutual boards? NEDs could elect to defer a portion of their annual fee into a holding arrangement for a defined period. While not performance related, this approach reinforces a longer term mindset similar to the time horizon alignment sought through share ownership. Enhanced evaluation and differentiation also have a role to play. Robust annual board and individual evaluations, supported by external facilitation, can enable societies to recognise differing levels of responsibility, workload and complexity, particularly for chairs and committee leads, while preserving overall independence.
Equally important is transparency. Ensuring the rationale behind NED remuneration is explicitly linked to responsibility, time commitment and organisational complexity strengthens legitimacy and trust with members. Taken together, these approaches would deliver what the FRC intends for listed boards: transparency, alignment and accountability, without compromising mutual principles.
Ultimately, remuneration is not about reward but recognition. Under compensation risks narrowing the pool of candidates, particularly excluding those who cannot afford the time commitment such roles demand. Over time, this can unintentionally undermine diversity of background, perspective and experience at board level. By thoughtfully re examining remuneration structures, building societies can remain true to their values while ensuring they are competitive, credible and well governed in an increasingly demanding environment.
Remuneration is more than a financial mechanism; it is a cultural signal. It reflects how an organisation values stewardship, independence and responsibility. The FRC update serves as a timely prompt for all boards to reconsider whether their approach to NED remuneration genuinely supports the behaviours, accountability and long term thinking they seek. Mutuals may never pay NEDs in shares, but they can, and should, think with equal ambition about how they define alignment, value and trust.
From Building Society Association Blog, December 2025
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