Executive vs Non-Executive Directors: Difference and Comparison

Various employees are needed in a company for the absolute improvement of the company. Different employees take charge of different departments in order to keep order in the company.

Executive and non-executive directors are two posts that are responsible for a company’s growth and development. These two designations are completely different and have different responsibilities to perform.

Key Takeaways

1. Executive directors hold managerial roles within a company, actively participating in daily operations and strategic decision-making.
2. Non-executive directors do not engage in day-to-day operations but contribute to the company’s strategy and provide oversight through their independent perspective.
3. Non-executive directors can enhance a company’s governance by providing unbiased advice and ensuring that executive directors act in the best interests of shareholders.

Executive Directors vs Non-Executive Directors

Executive directors are appointed by the board of directors of the company. They are responsible for defining the goals of the company and making strategies for its betterment. Non-executive directors are the members of the board of directors. They give their advice on improving the company.

The nomination committee or the board of the company appoints the executive director to manage the policies of the company. This person is responsible for all the ongoing projects of the company.

He/she is in charge of the management. He/she reports to the none executive director of the same company. Hence he or she is not independent.

Non-executive directors are external directors who are appointed to monitor and rectify the different policies undertaken by the organisation.

This post is independent, and their experience is their most useful attribute. These directors receive service fees in exchange for their services.

Not only the company’s strategies but the company’s financial aspect also comes under their supervision.

Comparison Table

Parameters of Comparison	Executive Directors	Non-Executive Directors
Definition	Executive Director is an employee of a company. He or she is supposed to be in charge of the management of the company.	A Non-Executive Director is supposed to be a member of the company’s board. They are not responsible for any management responsibilities.
Independence	Executive directors are not independent.	Non-executive directors are completely Independent.
Earning	Executive directors are entitled to get salaries.	Non-executive directors get a service fee as their remuneration.
Designation	Designations such as CEO, CFO, MD, etc., come under the profile of the executive director.	The position of the chairman is for non-executive directors.
Type	Executive directors work from inside the company, and they are internal directors.	Non-executive directors work from outside of the sphere of the company. They are external directors.

What are Executive Directors?

Executive Directors hold a positive in the board of the company. The company hires them to work in exchange for money. They function as employees and members of the company board too.

Executive directors are responsible for executing the objective of the company.

Executive directors report to the Chairman of the company for their review on any ongoing work of the firm. They are accountable for supervising the different policies and strategies taken by2 the company.

Executive Director’s duties include managing the company’s business and the progress of various ongoing plans. These directors are appointed to the board by the Nomination Committee.

This process of electing can also be done by the board of the company. CEO, CFO, MD etc., posts come under the title of executive director.

Executive directors are the company’s internal directors. Shareholders of the company also have the power to elect an executive director for the company.

What are Non-Executive Directors?

The non-executive director is also known as NED. Both executive and non-executive directors make up the backbone of a company’s board.

Even though he/she does not participate in the company’s operations, that person has a very valuable tort to play in the company’s prosperity. Any decision for the company has to go through his inspection.

As the company uses the insights of the non-executive directors, one of the criteria for this post is being experienced. One of the duties of this post is to monitor the strategies and programs of the company.

But the duty is not limited to that only. A person obtaining this post also has to assess the firm’s financial reports.

This post is expected to bring a different perspective on board in order to fetch the absolute prosperity of the organisation. The person is liable to detect any impending risks or crises of the company.

Main Differences Between Executive and Non-Executive Directors

1. An executive director is an employee of a company, but a non-executive director is not an employee but a member of the company’s board.
2. An executive director is in charge of the management of the company, but a non-executive director is not responsible for any management responsibilities.
3. Executive directors are not independent. They work under the company, while non-executive directors are completely Independent.
4. Designations such as CEO, CFO, MD etc., come under the profile of the executive director while, on the other hand, the position of the chairman is for non-executive directors.
5. Executive directors receive salaries, whereas non-executive directors receive their service fees.
6. Executive directors are responsible for developing and implementing various prosperous strategies for the company, while a non-executive director is responsible for evaluating and assessing the given strategies.
7. Executive directors take action while non-executive directors review the actions.

References

1. https://www.emerald.com/insight/content/doi/10.1108/13620439810211117/full/html
2. https://www.emerald.com/insight/content/doi/10.1108/EUM0000000005455/full/html