This month, the UK Financial Reporting Council (FRC) released updated guidance on the remuneration of non-executive directors, reaffirming one of the UK Corporate Governance Code’s most defining features: the flexibility of “comply or explain.”
While the Code itself remains unchanged, the FRC’s update clarifies how companies can structure NED remuneration in a way that supports alignment with shareholders without compromising independence.
The guidance recognises that boards may wish to encourage NEDs to build personal shareholdings to demonstrate long-term commitment. It confirms that paying part of NED fees in shares is fully compatible with the Code—so long as companies are transparent about their rationale.
At the same time, the FRC has drawn a clear line: performance-related pay remains inappropriate for independent NEDs, preserving the objectivity essential to strong governance.
This theme of thoughtful flexibility strongly echoed conversations at this year’s NED Debate 2025, where FRC CEO Richard Moriarty urged boards to make fuller use of the “explain” in “comply or explain.” He encouraged NEDs to demonstrate their independence and judgement through well-reasoned deviations from standard practice when those better suited a company’s specific context.
As the Debate highlighted, questions about the effectiveness of UK governance are as active as ever, with compelling arguments from both advocates of the UK model and those pushing for reform.
The final vote went against the motion “This House believes UK Corporate Governance is effective”, reflecting ongoing scepticism among practitioners about how well the current framework works in practice.
The FRC’s latest guidance lands squarely within this national conversation, underscoring that good governance is not about uniformity, but about thoughtful, transparent decision-making tailored to each organisation.
It serves as a timely reminder that effective governance relies not on rigid compliance, but on informed judgement and open explanation—principles that remain central to strengthening board effectiveness across the UK.
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Read the full annoucement here.