The Advisors' Blog

I’m often asked by directors of smaller publicly-traded, or even private companies whether I think their pay for board service is competitive. Most directors, like your boss and your spouse, are of course overworked and underpaid.

I respond by taking them through what I call the “bottom’s up approach” to setting pay for directors. I ask the director to estimate the number of hours he or she spends each year on different board activities – – mosty, participating at board meetings, at committee meetings, at a board retreat, on conference calls, and in individual meetings, as well as in preparing for these sessions (although I tell them to exclude travel time). Say that serving as a director of ABC Company takes about 100 hours per year. Then I ask the individual: what is the average hourly rate of the senior outside advisors to the Company and its Board – – that is, its attorneys, accountants, business consultants, marketing specialists, etc.

The answer is often, for smaller companies, about $350-$400/hour. Then I say, “Well, for you that’s 100 hours times $350-$400/hour, or $35,000 – $40,000 per year as an independent contractor – – i.e., as a non-employee director of ABC. How does that compare to the sum of your retainer, meeting fees and annualized stock opportunity?” The answer, in every case I’ve had so far, is that what the inquiring director is getting paid – – usually about half in cash retainers and meeting fees, and half in stock – – is very close to the bottoms-up answer. My experience is that (i) this reassures the director that his or her pay is fair and (ii) once an individual thinks that the pay for his or her job is fair – – and this is especially true for outside directors – – then that person does the job for other reasons.

– Peter Hursh, ECG Advisors