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Please contact Amit Batish, Director, Content & Communications, at abatish@equilar.com for more information or commentary on Equilar research and data analysis. Boards continue to have a strong impact on company performance. [8]). Can We Save Social Media? Copyright 2023 TechCXO | All Rights Reserved |, new study by Compensation Advisory Partners, Board of Directors Management Guide for Startups. Compensation is typically in the $20,000 - $30,000 per year range, and may be structured several different ways. 47. Typically, supplemental committee member compensation is highest for the audit committee, followed by the compensation committee, with nominating/governance committee in third place. CGC-Talent is covering a review of the compensation arrangements for non-executive directors of the Board of each company from the 2020 Proxy Season in the S&P / TSX Mid-Market*. Public boards meet far more often than private boards, which is another reason why meeting fees are higher. [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. He also said that while there is a cost to bringing on non-investor board members, the potential benefits far outweigh those costs. For a few industries and some companies, increases were substantial, reflecting an every three-to-four-year cycle of adjustments to bring director pay to market instead of the annual increases often awarded to executives. To use information contained herein, please write to our team. Product & Technology James Cameron says Titan passengers had warning of implosion - Los Human Capital 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. Figure 3: Median Annual Director Retainer Pay Component Values (Equilar 500). Undoubtedly, many companies had to make adjustments to the way they calculated share awards. In particular, ISS considers the adoption of pay limits when assessing non-executive director compensation policies for which management seeks shareholder ratification. The lowest median retainer of $245,000 was awarded to directors in the consumer cyclical industry, also consistent with trends for executive pay. Aon plc. Only 2 percent of micro-cap firms and 3 percent of small companies have the same. Other. Director Compensation Practices in the Russell 3000 and S&P 500: 2021 Edition documents trends and developments in non-employee director compensation at 2,855 companies issuing equity securities registered with the US Securities and Exchange Commission (SEC) that filed their proxy statement in the period between January 1 and December 31, 2020, and, as of January 2021, were included in the Russell 3000 Index. The average number of meetings of compensation committees has increased since 2004 but only slightly, with S&P 500 compensation committees holding an average of six meetings in 2019 compared to 5.8 in 2004. As the effects of COVID-19 slow over time, it is these factors that will likely prevail as the greater influences on director compensation. 2022-2023 Director Compensation Report | Pearl Meyer Directors on corporate boards averaged around $36,000 in compensation in 2016. Total compensation. 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. The thinking goes that they should have skin in the game, and feel the pain when shareholders do, but that they should not be driven to boost the stock price to pad their personal assets, especially in the short term. Infographics For comparison purposes, median increases in non-employee director compensation lagged behind CEOs and named executive officers (NEOs). Most companies clustered around the median retainer across the Equilar 500, and very few award more than half a million dollars annually. Annual revenue and asset values are measured in US dollars as of December 31, 2020. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. 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. Yet, since 2004, the size of boards in the S&P 500 has remained relatively stable. Listing standards require that all non-controlled public companies have an audit, compensation and nominating and governance committee comprised of independent directors. To ensure that CCC continues to have the leadership it needs to deliver Canadian solutions to the world, the Honourable Mary Ng, Minister of International Trade, Export Promotion, Small Business and Economic Development, announced the following appointments and reappointments to CCC's board of directors: Mark Dienesch (appointment) Board compensation for directors of large U.S. companies just passed a new threshold $300,000 per year in total fees up 3.5% according to a new study by Compensation Advisory Partners. 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. Inflation. Therefore, a change to this policy might be forthcoming, with companies potentially paying the same for remote meetings as in-person. How do you know if you are paying too much or not enough? Independent directors also expect to receive equity grants along with their cash compensation. Most board pay programs, whether at private or publicly traded companies, will strive to compensate directors for their time, as well as for the value received by the company for the director's contributions. In addition, you have to make comparison of companies (1-2 examples) that . Lodestone Global evaluated 331 companies across 33 different industries and 39 countries and published the in 2016. The 2021 Inside the Private Company Boardroom report aims to fill this void, providing private company data addressing the structure of the board, as well as its director compensation practices. At least in part, this disparity can be attributed to the fact that, while director pay may be reviewed annually, it is rarely also adjusted annually. Part II: Supplemental Compensation, including the cash retainer and meeting fees granted for serving on board committees and the premiums offered for board and committee leadership roles. What Does a Director on a Corporate Board Get Paid? (go back), 82021 Proxy Paper Guidelines: United States, Glass Lewis, p. In fact, it is more likely to be increased only once every three, four, or even five years. Rethink Location Strategy, Articles Russell 3000 figures are also segmented according to business industry and company size. Posted by Matthew Friestedt, Marc Trevio, and Melissa Sawyer, Sullivan & Cromwell LLP, on, Harvard Law School Forum on Corporate Governance. The board of directors of the new company at a meeting held on July 7 approved the appointment of new directors. Below are further key trends from the report. 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. As you would expect, most of the difference is driven by significantly lower long-term incentive (LTI) awards among private companies. As you can see from the chart, directors earned a $31k retainer, $2,750 per meeting and $750 per formal teleconference. Stay up to date on the latest board member and executive insights, trends and reports. * Note: CGC has collected quantitative information and key statistics regarding director compensation practice In the latest study, only 17 percent of all companies paid directors board meeting fees; in 2011, 61 percent of micro-cap and 31 percent of top 200 firms compensated board members this way. * TBD indicates that the company disclosed the reduction but not its magnitude. Among those that do still pay meeting fees, around 70 percent of companies award them for live meetings only. Among those companies disclosing the presence of a Lead Director, 38.0% paid a premium for service in this position in 2005 versus 28.8% in 2004. The average additional retainer for a committee chair between May 2018 and May 2019 was $22,132, an increase of roughly 294% from 2004. For example, if a company alters its board governance or committee structure, the change may affect director compensation. We saw broad based strength across many industries/sub-industries likely commensurate with where we are in the current economic cycle. Diversity Newsletter Beyond the three standing committees, 23 percent of companies in the study have executive committees and 14 percent have finance committees. See p. 15 for how Total Compensation is calculated for the purpose of this study. Director Compensation Practices offers a comprehensive set of benchmarking data and analysis needed to inform the board pay design process. Retainers for Service as Committee Chairs. We can expect to see this practice continuing because compensation committees typically do not want to increase director pay by incremental amounts, generally waiting until a substantial market correction is necessary before recommending changes. For example, if your Company is worth $100mm, then you would pay 0.1% per year served ($100k/$100mm). Comparing to the 2019 BDO 600 survey, private companies seem to be increasing their remuneration programs faster than their public company counterparts, albeit by a small margin (+5% vs. +3% ). June 22, 2023 6:36 PM PT. This may reflect the strength of the U.S. markets, both in terms of employment and equity market valuations. To place a ceiling on cash payments, management could submit a proposal on the specific issue of director compensation limits for a vote at the next annual meeting. Committee Prevalence "Titanic" director James Cameron said during an ABC News interview that one of his longtime friends was among the passengers on the . It happens because they understand that the duties and workloads will change over time or because they dont want to impair committee members and chairs rotation or create divisions within the board. Median pay for non-management partners is up from $290K last year. Micro-cap companies also stand out from the pack as they belong to the only size category that delivers less than 50 percent of director compensation through equity, delivering only 47 percent this way. New plans may make allowances for these kinds of adjustments to be an integral part of a flexible policy adapted to meet any situation. Business size, industry, structure, complexity, the number of yearly meetings are just a number of variables you have to consider when setting your board remuneration programs. 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. 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. For the calculation inclusive of initial equity premiums, the premium was annualized over a five-year period: As a result, the figures reported represent 1/5 of any initial equity premium value. The sample's firms had a median revenue of $100 million, and a median employee headcount of 250. Similarly, the number of meetings held by committees has changed little. The COVID-19 pandemic justifiably receives most of the attention for recent disruption in the corporate environment, but in many cases, it only served as a spark, allowing other events to ignite the flames underneath trends that were already happening: Digital transformation, vulnerability to climate change and cyber attacks, diversity and inclusion, social inequity and injustice, political instability, fair and equitable treatment of all employees, work-life balance, and human capital management. On-demand Webinars, Rewards Director total compensation increased by 2.3% in fiscal year 2020 over fiscal year 2019, according to the BDO 600: 2021 Study of Board Compensation Practices of 600 Mid-Market Public Companies. Learn about our new full-time interim services at CXO Partners. 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. While peer company benchmarking can be informative, no single approach to director compensation works for every company. Executive compensation is awarded primarily through variable, at risk and performance-based incentives. 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. The chairman of the board or someone with relevant scientific or financial expertise like an audit committee might be paid more than a regular director. The Wall Street Journal, in a 2016 article titled Three, Four, Five? Mid-Market CEOs, CFOs See Double-Digit Pay Increase - BDO Study Alternatively, a change in the board or committee charter that applied an overall ceiling to total director compensation amounts although it would not grant legal protection unless also ratified by shareholders. 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. [1]. 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. Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. COVID-19 may also impact future director compensation. Small, medium, large, and top 200 companiesoften the more established public companiesall offer director compensation in the form of at least 50 percent equity. Equity Compensation. Compensation Differs Greatly For Board Service. 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). The project is a collaboration among The Conference Board, compensation consulting firm Semler Brossy, and ESG data analytics firm ESGAUGE. The BDO 600 2020 Study of Board Compensation Practices This post is based on a Sullivan & Cromwell memorandum by Mr. Friestedt, Mr. Trevio, Ms. Sawyer, andHeather L. Coleman. At public companies, equity might make up to 50% of a directors compensation. Please enable Javascript to view this form. With the push for independent directorships following Sarbanes-Oxley in 2002, the responsibility to align pay with performance following Dodd-Frank in 2010, and now the pressure to reconcile corporate activity with social responsibility in response to a rise in ESG concerns from a vast majority of corporate investors, the role of the corporate director has evolved considerably. 2020 Private Company Board Compensation Survey. Contact & Locations 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. As you would expect, most of the difference is driven by significantly lower long-term incentive (LTI) awards among private companies. A larger corporation, like an S&P 500 company, may be willing, and able, to pay its directors more to compensate for the greater demands and complexities those individuals may face in their role as a director of a large or mega cap company. The data was calculated from the company's proxy filings for 2017. Media Relations Often working behind the scenes on critically important matters without the glory nor the flash of a CEO position, they bear the weight of decisions made by company executives and carry the torch in front of shareholders, who can often be the toughest critics of such decisions. Over the last 10 years, average U.S. public company director compensation has increased steadily, in part due to changes in board composition and governance that have increased the number and significance of board leadership positions held by non-executive directors. When looking solely at the balance between cash and equity, director pay looks similar to executive compensation. The Directors may be paid their expenses, if any, of attendance at such meetings of the Board and may be paid a fixed sum for attendance at each meeting of the Board or a stated salary as a Director. 97% of the S&P 500 boards grant an additional retainer to committee chairs, especially for those serving as audit or compensation committee chairs. In the sample of director pay cuts, 25 percent of the companies opted for the total forfeiture of cash retainers, while another 25 percent of companies applied cuts of between zero and 25 percent. Some respondents did make retroactive changes, with 20% cancelling a planned increase or temporarily reducing director compensation. The respondents to this worldwide survey were all CEOs of companies with revenues ranging between $10 million and $1 billion. From there, companies typically take into consideration company-specific factors. What are the benefits? [3]. In addition, median committee retainer compensation is highest for audit committee members ($10,000) and lowest for nominating and governance committee members ($6,000). All rights reserved. According to Semler Brossy, 194 Russell 3000 companies have announced director pay cuts. Changes to the amount of work required of a director or proxy adviser policies may continue to influence director compensation in the future. Of the S&P 500 boards with a lead or presiding director (typically where the chair is not independent), 77% offered an additional fee. 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. Close the Future Skills Gap Similarly, given the large equity component, total compensation for public company directors ($170,000) dwarfs private company director pay of ~$43,500. 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. Directorships may be part-time jobs, but they now require overtime commitments. Board compensation for directors of large U.S. companies just passed a new threshold $300,000 per year in total fees up 3.5% according to a new study by Compensation Advisory Partners. The Board shall have the authority to fix the compensation of Directors. Almost all public companies offer LTI (96%) compared to private companies (20%). Pay for board directors at mid-market companies increased 3% between 2017 and 2018. Increase Quality & Efficiency The lowest median retainer of $245,000 was awarded to directors in the consumer cyclical industry, also consistent with trends for executive pay. The standard way of calculating equity awards (i.e., a fixed value of shares, either stock or stock options) might have resulted in directors receiving more shares at lower prices if those shares were granted during the initial depths of the pandemic. Hybrid working environments. The dashboard is organized into six parts. How Much Do Corporate Board Directors Get Paid? As a result, pay ceilings in equity plan documents are more common, and advisory votes on board pay (or on those directors who decide board pay) could become a more frequent proxy matter. Nicholas J Price Boards are taking new approaches to succession planning because of legislative and regulatory changes. Part VI: Deferred Compensation and Deferred Stock Units (DSUs), including elective and mandatory deferrals, to what compensation element the deferral applies, the form of the deferred compensation payout, the use of deferred cash investment vehicles (such as money-market or savings accounts, retirement accounts, or others) and the prevalence, value, holding requirements, vesting periods, and payout forms of DSUs. Almost all board meetings were remote during 2020, which may also keep a lid on pay for some directors. 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. According to a database created by ESGAUGE in collaboration with The Conference Board and Semler Brossy, through March 31, 2021, 695 companies in the Russell 3000 index announced adjustments to pay levels; of those, 416 included both executives and directors, while the remainder applied only to executives. Youll know How much to pay Board members per meeting or per year Where to find Independent Directors The metrics and KPIs your Board wants from you! That's actually a 5% increase from the year. This report focuses on pay levels as reported in the 2021 proxies, which reflect the compensation arrangements as influenced by the COVID-19 environment. In a year of frequent meetings or rapid share price appreciation, these features could easily move the companys directors to the higher end of the peer comparative range. Executive Ops, People The 2022 Private Company Board Compensation Survey Topic : Topic : Remuneration of the board of directors Company: ownership guidelines and holding requirements. Board Compensation for Public and Private Company Directors - TechCXO 77% of S&P 500 boards grant directors equity in addition to cash retainers, representing a slight decrease from 10 years ago, when 79% of such boards granted stock. Enable the Future of Pay Stock awards represent 57% of total average director compensation for S&P 500 companies, and option grants represent 3%. 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. Most companies offered some cash to their board members, with the median value of the cash component coming in at $100,000 annually and the remainder coming in equity. Board meetings are no longer a hobby to fill the time for post-retirement CEOs. According to our study, in fiscal year 2020: Talk about some of the details of your offer with a focus on the value people get back. After a strong 2018, Financial Services and Utilities/Energy/Industrials firms slowed their growth in 2019. Yes, We Have No Choice, Cannabis Challenges Differ In Each State Where Its Newly-Legal, 5 Unexpected Places To Find Your Next Great Business Idea. Finance The sizes of the annual retainer and meeting fees grow with company size (See Charts 6 and 7). What Do Corporate Board Directors Do to Earn Their Pay? For example, according to our data, in the Russell 3000 Consumer Discretionary sector, the difference in total director compensation between the median and the 90th percentile can amount to only $68,008, or 32.6 percent of the median (a fraction of what is typically seen in executive compensation data). Board Committees: Private company boards increasingly adopt committee structures typical of public company boards. The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Director Compensation and Demographic Trends Align Boards with Given the lower LTI, private companies address the shortfall with significantly larger retainers and competitive meeting fees. How much do corporate boards pay? These 25 companies pay a lot Some factors that influence director compensation have not changed substantially over the years. 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. By Emily St. Martin Staff Writer. With supporting text below as a natural lead-in to additional content. According to proxy statements filed in the January 1-December 31, 2020 period, the median Total Compensation awarded to a board member in the latest fiscal year (most often, 2019) was $189,980 in the Russell 3000 and $280,000 in the S&P 500.