Understanding Board of Director’s Compensation

Melissa Henderson January 16, 2019

Along with the mystery of how to land the first board seat, comes the second mystery – understanding a board of director’s compensation. As potential clients of Summit Executive Resources consider the path to independent directorships, we are often asked for our insights into what components comprise a board of director’s compensation as well as how much can be expected. Although the following list is not all inclusive and there are certainly anomalies, it should provide some measure of what is considered typical board of director’s compensation in a publicly traded mid-cap company.

Board Compensation Components

Publicly traded board compensation is usually composed of at least three, and sometimes five components:

Retainer – The board retainer is the minimum amount of cash paid for holding a seat on the board and being available for board and committee meetings.

Meeting Fees – Approximately ten years ago, most companies paid an incremental fee which ranged from $1,500 to $5,000 per board and committee meeting attended and some public boards still do compensate in this way. A more common practice today though, has many boards including these fees in the retainer for a given number of meetings per year…typically four or five. In addition, most companies still pay additional meetings fees for special or ad hoc meetings over and above the normal meeting dates.

Chair & Lead Fees – There is also additional cash compensation for the Board Chair, Lead Director and Committee Chair positions. The Board Chair fee can be quite substantial and sometimes double the base retainer. The Audit Committee and Compensation Committee Chairs can receive anywhere from $10,000 to $25,000 of additional cash compensation. Other committee chairs might receive less. There are also fees paid to board members who serve on committees but do not necessarily chair a committee.

Stock – Nearly 100% of public company board compensation includes a restricted stock award each year. Sometimes the stock award has a very significant value with a vesting period of one to two years at most. This portion of the compensation can be highly underestimated by board candidates and often gets lost in translation when it comes to the total “value’ of the complete board compensation package. This under estimation by potential board candidates is truly unfortunate as we often see clients turn up their nose at an opportunity, because they are only focused on the cash components.

Other Perks – You will find that some companies provide their board members with additional limited perks. These perks can include access to deferred compensation or pension programs, private air travel for board meetings and possibly for personal travel, and access to company offices as well as secretarial and administrative services. That said, these types of perks have been less widespread in recent years.

Other Compensation Insights

Many individuals will attempt to link board compensation with company revenue size. We have found that it is not a good metric alone to use when determining the likelihood of a board compensation package. While revenue may be one measure, it is important to consider margin of the industry and company. Other considerations should be whether the company is publicly traded, privately-held, or private equity owned. In addition, candidates should focus on determining how much stock is in addition to the cash, which is usually greater.

As a gauge, considering a mid-cap definition being between $500 million and $2 billion in revenues, a $1B publicly traded technology company could provide a cash component in the range of $60,000 to $70,000 annually. Adding stock awards, all in, the compensation can range from $185,000 to $250,000 annually.

Most importantly and above all, board compensation fees are not negotiable. When you agree to sign up for a corporate board, you will receive what has already been approved by past board compensation parameters and plans.  While this does not provide all of the answers to board compensation, it does support the point that each and every board situation should be looked at individually and encompass all of the components before considering if the opportunity is “worth it”. In the end, you are participating on this board, because you have interest in the company, are compelled by the opportunities and challenges, can deliver differentiating value to the board and are a shareholder with fiduciary responsibility. Simply said, it is not all about the cash.



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