Along with the mystery of how to land the first board seat, comes the second mystery – understanding board of directors’ compensation. As potential clients of Summit Executive Resources consider the path to independent directorships, we are often asked for our insights into what components and how much is in board of directors’ compensation. Although the following is not all inclusive and there are certainly anomalies, it will provide some measure of what is considered typical board of directors’ compensation in a publicly traded mid-cap company —
Board Compensation Components
Publicly traded board compensation is usually composed of at least three, but sometimes five components –
Other Compensation Insights
Many individuals will attempt to link board fees with the size of company revenue. We have found that using the size of company revenue alone does not validate the likelihood of a given company’s board compensation package. revenue may be one element of determine board compensation, it is also important to consider growth percentages of the given industry and target company. Other considerations should be whether the company is publicly traded, privately-held, or private equity owned. addition, one should focus on determining how much stock is in addition to the cash which is usually greater.
A gauge when determining board compensation, a mid-cap company with revenues between $500M and $2B in revenues, or a $1B publicly traded technology company could provide a cash component in the range of $60,000 to $70,000 annually. Adding in stock, the total compensation can range between $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 the compensation that has already been determined by reviews of compensation of peer companies and possibly by an outside consulting firm.. 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.