Difference Between Executive and Non Executive Directors (With Table)

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.

Executive Directors vs Non Executive Directors

The difference between executive and non-executive directors is that an executive director manages the routine of a company, but a non-executive director does not manage any routine or other jobs of the company. Executive directors are employees of the company, and non-executive directors are board members. Executive directors perform the tasks, and non-executive directors provide reviews for the tasks.

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 strategies of the company but the financial aspect of the company also comes under their supervision.

Comparison Table Between Executive and Non Executive Directors

Parameters of ComparisonExecutive DirectorsNon 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.
IndependenceExecutive directors are not independent.Non-executive directors are completely Independent.
EarningExecutive directors are entitled to get salaries.Non-executive directors get a service fee as their remuneration.
DesignationDesignations such as CEO, CFO, MD, etc. comes under the profile of the executive director.The position of the chairman is for non-executive directors.
TypeExecutive directors work from the inside of the company, 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 the member 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 to supervise the different policies and strategies taken by the company. Executive Director’s duties include managing the company’s business, as well as 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 the backbone of a company’s board. Even though he/she does not participate in the operations of the company, yet that person has a very valuable tort to play in the prosperity of the company. Any decision for the company has to go through from 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 financial reports of the firm.

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 kind of 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 actions while non-executive directors review the actions.

Conclusion

An executive director and a non-executive director possess different kinds of power and operate in two different ways. Non-executive directors have more power and have the upper hand over the executive directors. These two posts have different functions, and the post of a non-executive director is higher in position. That person is not responsible for any managing work of the company. He/she just supervises and gives reviews on other employees’ work and the strategies taken by the executive director.

No matter how much difference these two designations have in between them, they have one similar goal, and that is accomplishing the best interest of the company. They are equally liable to achieve the ultimate success of their firm.

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
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