A (Small) Raise for Directors

Many of them spent more hours doing the work. And certainly the complexity of the task grew in most cases. But as a group, board directors didn’t walk away with any fat raises last year.

According to Korn Ferry Hay Group’s just-released 7th Annual Director Compensation Study, total director compensation rose in the 3% to 5% range. Pay was generally between $275,000 to $295,000 last year, up from $265,000 to $280,000 the prior year.

“It’s not surprising that we’re seeing director compensation increases,” says Irv Becker, senior client partner and North American leader for Korn Ferry Hay Group’s Executive Pay & Governance practice. “This rise reflects increased board responsibilities and time commitments, as well as heightened liability concerns and pressure from investors and governance watchdogs.”

The director compensation study includes data from the 300 largest companies with revenues greater than $9 billion that filed their proxy statements between May 1, 2016, and April 30, 2017.

In a trend that began several years ago, companies are continuing to eliminate board meeting fees—now paid by only 11% of companies in the study, down from 16% last year. Instead, companies are focusing on packages that include an annual retainer, committee chair retainers and long-term incentives.

Key findings of the director compensation study include:

• Annual retainer. The median annual retainer remains unchanged from last year at $100,000. The last time the median annual retainer increased was in 2014, when it increased to $100,000 from the 2013 median annual retainer of $90,000. All the companies in this year’s study paid directors an annual retainer, with most of the companies providing the retainer in cash.
• Long-term incentive packages. The median value of long-term incentive packages increased to $160,000 from the 2015 value of $150,000. Restricted stock continues to be the most prevalent means of rewarding directors, with 78% of companies using this incentive. Stock option grants continued to decline from 8% in 2015 to 7% in 2016.
• Committee chair retainers. In recognition of additional responsibilities and time commitments, most of the companies in the study paid an additional retainer to committee chairs. The study found that 97% paid their audit committee chair a median retainer of $25,000; 95% paid their compensation committee chair a median retainer of $20,000; 92% paid their nominating committee chair a median retainer of $15,000.
• Few committee member retainers are offered, except for audit committee. Perhaps a reflection of the added time commitment and specialized expertise, the percentage of companies paying a retainer for audit committee members ticked upward to 43%, while the median retainer increased from $12,000 to $15,000. Unchanged since last year, 28% of companies paid a compensation committee member a median retainer of $10,000. Companies were least likely to offer retainers to members of their nominating committees, with only 26% saying they do so, with a median retainer of $10,000, which is the same as last year.
• Lead director premiums have remained flat. The median premium pay for lead directors remained flat at $30,000, with 64% of companies paying a lead director premium this year, which is slightly up from 63 percent last year.

As boards increasingly compete for directors, appropriate compensation becomes a more relevant, critical concern, especially given now-common limitations on board service. CEOs and other C-suite executives—those most actively sought as directors—are often limited to one outside board, and sometimes none.

“Director pay needs to move higher faster, especially for lead directors,” says Dennis Carey, co-leader of Korn Ferry’s Board Services practice. “Even though the vast majority of directors take on the role without focusing on compensation, boards should recognize the value directors bring and not be shy about aggressively rewarding them for their time and fiduciary responsibilities.”