Board Compensation for Public and Private Company Directors - TechCXO Overall, private companies provide higher committee retainers and fees as a way of offsetting the lack of an equity opportunity. In this article we examine the results of our most recent research that highlights how much board members should receive in compensation. Median pay for non-management partners is up from $290K last year. Total Compensation figures are the sum of all compensation elements paid to each member of the board of directors (including cash retainer, total meeting fees, stock awards, and stock options but excluding the values reported under "other compensation," which often display significant variations from company to company) plus the per-director val. Learn about our new full-time interim services at CXO Partners. Just two companies across the entire Equilar 500 offered more than $1 million as a retainer for their directors on an annual basis in any year, and only one company (Tesla) awarded more than $1 million in all three years of the study. NACD and Pearl Meyer are pleased to present the 2022-2023 Director Compensation Report, the 24th annual analysis of non-employee director compensation providing a comprehensive perspective on director pay practices across a wide range of industries and company sizes. Follow these straightforward guidelines to avoid common mistakes and make your Board interactions successful. Not all smaller businesses will formalize their ESG oversight by creating a separate committee; they could very well be overseeing such issues at the full-board level or within the scope of a standing committee. COVID-19 may also impact future director compensation. The following calculation methodologies were applied. How much do corporate boards pay? These 25 companies pay a lot In fact, increases contemplated during the fall of 2019 and instituted in the early months of 2020 may have been adjusted back down again at some companies. This decline was only accelerated by the onset of the pandemic in 2020 as boards saw increases in the amount of work expected of them and of unofficial meetings and communication between directors outside of board meetings. Like the board retainer, audit and compensation committee retainers are higher among private companies. Independent directors also expect to receive equity grants along with their cash compensation. Moreover, about 30 percent of S&P 500 companies have dollar-denominated equity limits, and 16.3 percent of Russell 3000 companies disclose share-denominated equity limits. For example, if your Company is worth $100mm, then you would pay 0.1% per year served ($100k/$100mm). The average additional board chair fee was $172,127, although the additional fees fall within a wide range (with some companies offering only $30,000 and others offering up to $656,784). Sustainability. Meanwhile, basic materials companies awarded the largest increase in the median retainer to board members from 2018 to 2020, an increase of 12.5% from $240,000 to $270,000. The key findings: Nearly 90% of private companies provide some form of compensation to eligible directors, and most choose to pay board members annual retainers. However, more than a quarter and just less than half of the Russell 3000 and the S&P 500, respectively, have a combination of stock ownership guidelines and retention requirementssometimes until retirement or resignation from the board or, at least, until share ownership requirements have been met. Please enable Javascript to view this form. Clients Directors most commonly receive company shares in the form of stock or restricted stock units, with options being less frequently offered, and often at lower values (Figure 3). According to our study, in fiscal year 2020: The global pandemic has disrupted and amplified the role of boards across industries. Therefore, a change to this policy might be forthcoming, with companies potentially paying the same for remote meetings as in-person. While peer company benchmarking can be informative, no single approach to director compensation works for every company. * Note: CGC has collected quantitative information and key statistics regarding director compensation practice When was the last time you analyzed how much you should pay your board members? The amount and frequency of such grants also varies by the stage of the company. The lowest median retainer of $245,000 was awarded to directors in the consumer cyclical industry, also consistent with trends for executive pay. Additional retainers for board chairs and/or lead directors. No such payment shall preclude any Director from serving the Company in . Changes to the amount of work required of a director or proxy adviser policies may continue to influence director compensation in the future. The rise in director compensation over the past 10 years cannot be attributed to a single factor, but it coincides with other governance trends that may provide a partial explanation. Though listed companies are not required to have, or explain why they do not have, at least one diverse director until mid-2023, the reporting requirements go into effect this proxy season. Executive compensation is awarded primarily through variable, at risk and performance-based incentives. (go back), Posted by Matteo Tonello (The Conference Board), Mark Emanuel (Semler Brossy), Todd Sirras (Semler Brossy), Elijah Ostro (Semler Brossy), and Paul Hodgson (ESGAUGE), on, Harvard Law School Forum on Corporate Governance, on Director Compensation Practices in the Russell 3000 and S&P 500, Pay without Performance: The Unfulfilled Promise of Executive Compensation, Executive Compensation as an Agency Problem, https://conferenceboard.esgauge.org/directorcompensation, CEO and Executive Compensation Practices in the Russell 3000 and S&P 500: 2020 Edition, Corporate Governance Challenges in the COVID-19 Crisis: Findings from a Survey of US Public Companies, 2021 Proxy Season Preview and Shareholder Voting Trends (2017-2020), Corporate Board Practices in the Russell 3000 and S&P 500: 2020 Edition, Director Compensation Practices in the Russell 3000 and S&P 500: 2020 Edition, United States Proxy Voting Guidelines: Benchmark Policy Recommendations, 2021 Proxy Paper Guidelines: United States. Include any additional content here as a conclusion or next step. Increase Quality & Efficiency The 2019-2020 Director Compensation Report, produced in collaboration with Pearl Meyer, offers insights into compensation trends and changes based on data from 1,400 public companies in 24 industries. While there is a strong impulse to constrain pay levels given the current circumstances, many companies must keep their director compensation policies attractive to a diverse slate of candidates with relevant operating expertise in the evolving business landscape. Directors who serve on special committees, whether in connection with an M&A matter, special litigation, internal investigation or otherwise, generally receive supplemental compensation for their special committee service, but the amounts paid are scenario specific. Thus, we can expect boards to quickly come under the microscope for their own pay levels. The boards are transitioning to full fiduciary boards in this range. Compensation Force: Board of Director Compensation When it comes to overseeing less traditional subject areas, 12 percent of top 200 companies have environmental, social, and governance (ESG)-related committees. Over the same period, the average number of hours of work performed by directors has also increased, while the average number of board meetings and size of boards have remained stable. Approximately 35% of board compensation comes in the form of cash and the rest is in equity. (go back), 3Matteo Tonello, 2021 Proxy Season Preview and Shareholder Voting Trends (2017-2020), The Conference Board/ ESGAUGE, January 2021. For companies valued above $40mm of enterprise value, pay an independent director a percentage of the Company per year served equal to ($100k/enterprise valuation). According to our review of proxy statements, in the last three disclosure years, the percentage of companies reporting some type of director pay ceiling has grown, from 48.7 to 61.5 in Russell 3000 and from 53 to 66.9 in the S&P 500. These roles are also more common at public companies. The calculations extend to the entire sample of companies, including those reporting no value for any of the compensation components or supplemental compensations described: Total Compensation is reported two ways: exclusive of initial equity premiums and inclusive of initial equity premiums on an annualized basis. The trend away from per-meeting fees (toward fixed-fee retainers) will mean there is no compensatory upside to the marked increase in meetings in response to the pandemic. Close the Future Skills Gap This report focuses on pay levels as reported in the 2021 proxies, which reflect the compensation arrangements as influenced by the COVID-19 environment. The BDO 600 Study examines board compensation practices of 600 middle market public companies and tracks trends in director compensation within eight industry segments: energy, financial services-banking, financial services-nonbanking, healthcare, manufacturing, real estate, retail and technology. This makes understanding todays baseline for pay all the more critical. There are several ways to structure the cash compensation, but in general, the director is either paid a flat fee per meeting or a flat fee per year (paid quarterly) that assumes a certain level of commitment. Also, it is difficult to find information on what private companies pay their outside directors given the lack of disclosure. That is, if boards decrease in size, individual director compensation may rise because board work and obligations would be spread among fewer individuals. Pay for board directors at mid-market companies increased 3% between 2017 and 2018. (go back), 6United States Proxy Voting Guidelines: Benchmark Policy Recommendations, Institutional Shareholder Services (ISS), November 19, 2020, p. 50. Public company board members have a unique and sometimes unenviable role in Corporate America. What Does a Director on a Corporate Board Get Paid? Only 2 percent of micro-cap firms and 3 percent of small companies have the same. While directors traditional roles of strategic planning and risk management had already been undergoing an evolution, COVID-19 challenges exponentially increased the time they had to invest into their companies. The leadership roles at these committees are also rewarded differently, with audit committee chairs paid an annual premium of $15,000, compared to the $10,000 granted, at the median, to their counterparts at the compensation and nominating/governance committees. Year on Year Growth In Total Compensation By Industry. Let us know how we can help and a member of our team will be in touch shortly. For the current list of Russell 3000 and S&P 500 companies that made this announcement, access the public database. Newsroom The BDO 600 examines compensation plans and pay levels of 600 mid-market public companies a unique feature, as most compensation studies focus on much larger companies. Recruiting a new breed of diverse directors with different experience and skills may require significant changes to director pay structures, including adjusting compensation levels upwards to make posts more attractive to in-demand talent. Aon group companies will use your personal information to contact you from time to time about other products, services and events that we feel may be of interest to you. Share a real testimonial that hits some of your benefits (but isn't too sales-y). [4] Additional responsibilities encompass areas such as the oversight of environmental, social, and governance (ESG) practices, the promotion of policies advancing diversity, equity, and inclusion (DE&I) in the workforce, and the mitigation of risks related to climate change. Private companies tend to target their non-employee director pay at around the median of total cash compensation (excluding equity retainers) of publicly-traded companies. The data in these reports, while a snapshot in time, can be a useful benchmarking resource to compare compensation practices to public companies in a similar industry and size range. This is a market and NACD best practice. Message from the CEO; Corporate Overview; Corporate Mission & Future Vision; Long-Term Business Plan; Join Our Mailing List. Generally, private companies [1] are unable to compensate outside directors with equity. Some respondents did make retroactive changes, with 20% cancelling a planned increase or temporarily reducing director compensation. Board meeting and committee fees also remain more popular at smaller companies than large, with micro-cap firms offering 4 percent of compensation in the form of board meeting fees and 9 percent in committee fees, and top 200 firms offering 1 percent in board meeting fees and 4 percent in committee fees. Compensation for either a non-executive chair or a lead director is higher at public companies. While director compensation numbers pale in comparison to the astronomical figures thrown around on highest-paid executive lists, board members receive solid paychecks for navigating a changing and challenging environment. The decline in manufacturing and retail also seems correlated to the economic weakness in those segments. Director Compensation Practices in the Russell 3000 and S&P 500 Since public companies face greater regulatory and disclosure requirements, there is more time and effort needed on the part of public board directors. Radford Data & Analytics In the face of economic concerns, companies are reluctant to permanently increase compensation levels for newly recruited directors; therefore, they may favorably view the use of sign-on equity grants or the offer of a choice among compensation packages with different equity/cash mixes. That's actually a 5% increase from the year. Site Map| Email Preferences | Legal | Privacy Statement | Cookie Notice | Do Not Sell or Share My Personal Information | Cookie Preferences Includes Median retainer, per meeting, and excludes telecon. Dan Marcec, Senior Editor at Equilar, authored this post. General Disclaimer No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. Board of Directors Compensation of Members of the Board and Corporate Auditors Compliance Tax Others Home. US Securities and Exchange Commission filings, and other data to deliver insights into the state of board compensation for public companies . The total mean compensation for Russell 3000 companies was $167,013, based on 2019 disclosure documents. Board Leadership As I mentioned, compensation for publicly-held and privately-held companies is greatly dependent upon the size of that company and may range anywhere from $75,000 to $500,000 a year. The 4.8% increase (+4.5% in 2018) is the result of a 5.5% increase domestically and a 3.6% increase. These are generally companies that intend to remain private (e.g. In recent years, the workload and breadth of directors responsibility have been rising, as evidenced by an increasing number of meetings. In addition, you have to make comparison of companies (1-2 examples) that . The board typically meets. Additional compensation for board chairs and for lead or presiding directors has also risen, respectively, from $164,682 in 2014 to the current average of $172,127 for board chairs and from $29,932 (lead director) and $24,831 (presiding director) to an average of $39,992. 2019-2020 Director Compensation Report Total compensation for outside directors at private companies is about 36% lower than their public company peers. A board of directors (B of D) is the governing body of a company, elected by shareholders in the case of public companies to set strategy and oversee management. Equilar | Director Pay Trends 2021 In 2019, the average annual cash retainer for S&P 500 directors was $126,200. Isha Mukesh Ambani, the elder daughter of the billionaire, has been appointed as . Board directors give inside board directors a salary for serving on the board of directors as part of their employment. In both indexes, these figures represent an increase from the previous fiscal year: the rate of growth was higher (4.6 percent) for companies in the Russell 3000 compared to the S&P 500 (1.8 percent). The median number of annual board meetings among public companies (7 per year) is 75% higher than that for private companies (4 per year). In fact, it is more likely to be increased only once every three, four, or even five years. Related research from the Program on Corporate Governance includes the book Pay without Performance: The Unfulfilled Promise of Executive Compensation, andExecutive Compensation as an Agency Problem, both by Lucian Bebchuk and Jesse Fried. . Director demographics (gleaned from the SEC filings) reveal that there was little change in the median age of directors, which is 64, despite cybersecurity, human capital, and other issues important to the board increasingly demanding that people with such expertiseincluding sitting executives and younger digital nativesserve on boards. As a result, over time and once the current crisis has passed, these developments may bleed through to director pay levels in the form of increased supplemental retainers for committee service. Scale Fast The introduction of compensation limits for directors mitigates the risks of litigation. How Much Do Board Directors Get Paid? - Diligent Corporation The project is a collaboration among The Conference Board, compensation consulting firm Semler Brossy, and ESG data analytics firm ESGAUGE. Part V: Compensation Limits, including the prevalence of limits by type (whether total compensation limits, dollar-denominated limits or share-denominated limits) and the median and average value of these ceilings. Given the lower LTI, private companies address the shortfall with significantly larger retainers and competitive meeting fees. This is a BETA experience. The ISS voting policy defines outliers as those companies reporting director pay figures above the top 2 percent of all comparable directors within the same index and two-digit GICS business sector group. However, some S&P 500 companies pay a meeting fee in lieu of a retainer and cap directors aggregate meeting fee opportunity at a specified amount. Courtney Yu, Director of Research, provided data and analysis. What Should You Do When Your Founder Asks For More Equity? However, the long-term trends described above show no signs of abating. Lodestone Globalis a specialized consulting firm providing strategic guidance to chief executives of private and family controlled enterprises, who are considering forming or refreshing a board of directors. For directors who are not former CEOs, having pay in the form of equity that is likely locked up until retirement may not be much of an incentive to join a board, leading companies to seek new, creative solutions such as signing equity grants or different equity/cash ratios. After a strong 2018, Financial Services and Utilities/Energy/Industrials firms slowed their growth in 2019. It may also head off objections from proxy advisors. That number increases the closer a company gets to an IPO and can be in the range of $30,000 per year for pre-public or public companies, said Thomajan. This finding is even more pronounced in the Health Care sector, where as much as 57.6 percent of companies offer a sign-on bonus. Enable the Future of Pay Data on leadership premiums published in 2020 proxy statements already show a rise in the median retainer for the chair of the nominating/governance committees at the largest US public companies by annual revenueto $20,000, from $15,000 of the prior disclosure year. Director Compensation Practices offers a comprehensive set of benchmarking data and analysis needed to inform the board pay design process. Finance The general principle in committee pay is to compensate for the additional workload required to perform the specific tasks assigned to a committee. News. The survey included 375 companies across 33 different industries and 38 countries to analyze current board practices and compensation around the world. Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. CSX Corp. (NYSE: CSX) Total . As a result, despite the exponential growth in board members workload, the current disclosure season is likely to reveal an end (or a pause?) [7] (Glass Lewis, the other large proxy advisory service in the US, also warns about the dangers of excessive director pay as it can compromise the objectivity and independence of non-executive directors. How does big company Board comp compare to independent directors for startups, early stage companies and smaller companies? How Much Board of Directors Members Get Paid and What They Do (go back), 2Rusty OKelley et al., Corporate Governance Challenges in the COVID-19 Crisis: Findings from a Survey of US Public Companies, The Conference Board/ESGAUGE, June 2021. Compensation figures included in Director Compensation Practices in the Russell 3000 and S&P 500: 2021 Edition reflect the disclosures made in the director compensation tables and narratives included, under SEC rules, in proxy statements filed during the examined period. The ISS policy recognizes that board-level leadership positions, such as non-executive chairs and lead independent directors, are often paid more than other directors and thus compares such positions to similar roles. When should you use? However, an early stage company should expect to grant 0.1% to 0.25% of equity with a vesting period of 2 to 3 years. Even though shareholder litigation fears over excessive director pay [5] may have subsided in the past couple of years, the number of companies applying a ceiling to director compensation continues to grow. Their value is centered on understanding the concerns and priorities of corporate stakeholders and ensuring that executives follow through on promises. 2022-2023 Director Compensation Report | Pearl Meyer The Russell 3000 analysis by business sector shows that the highest year-on-year increases in the median value of Total Compensation occurred in the Materials and Financials groups (8.2 percent and 7.1 percent, respectively), while the lowest were reported by companies in the consumer product sectors (0.7 percent in Consumer Discretionary and 0.9 percent in Consumer Staples). [1]. If you do not wish to receive these communications, please check here: Reimagine Your Workforce Strategy Part I: Compensation Elements, with benchmarking information on the prevalence, value, and year-on-year increases of cash retainers, meeting fees, stock awards, stock options, and any benefits and perquisites. For board directors who get paid more than $600 per year, the nonprofit must give them a 1099. Some highlights include: The composition of a private board vs. public boards is one reason for their difference in pay. That all said, the volatility of the stock market may also have had a dampening effect, at least initially, on the take-home value of director compensation. Trends in U.S. Director Compensation - The Harvard Law School Forum on Compensation is typically in the $20,000 - $30,000 per year range, and may be structured several different ways. This includes the . To address this, Aons Private Company Total Compensation Measurement Survey collects data on the composition and compensation of the outside directors of private companies (excluding private equity-owned firms). Rewards Solutions Spotlight: Wie Markus Enzner, Executive Director Total Rewards bei Johnson Controls, die digitale Zukunft von HR sieht, How the Rewards Function is Being Shaped by Technology, Understanding Discretion on Equity Plans to Avoid Future Problems, | Do Not Sell or Share My Personal Information, Private board compensation trails public board compensation by 36%, driven mostly by lower amounts of long-term equity, A higher number of board members, along with additional meetings at public companies, may contribute to higher compensation vs. private companies, To offset the lack of equity compensation, private companies may provide higher committee retainers and fees to directors. The 2022 Private Company Board Compensation Survey Director Compensation and Demographic Trends Align Boards with Board meetings are no longer a hobby to fill the time for post-retirement CEOs. Similarly, pay for leadership roles within the board may begin to outpace the overall growth rate of standard director compensation. The energy sector was the only industry to see a drop in retainers in any year, falling from $280,000 in 2019 to $275,000 in 2020. In light of the COVID-19 pandemic, companies are making significant changes to executive compensation and employee rewards, often with significant board of director oversight. PwC's 2022 Annual Corporate Directors Survey Charting the course through a changing governance landscape In 2022, as both the ongoing direct impacts and unexpected side effects of the COVID-19 pandemic continue to mount, the landscape of the business world is shifting yet again. Distinctions are also made for the specific role of a director. Therefore, companies should be mindful of the effects on total compensation of program features such as meeting fees and guidelines applicable to fixed-share grants. Opinions expressed by Forbes Contributors are their own. He also said that while there is a cost to bringing on non-investor board members, the potential benefits far outweigh those costs.
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