The Advisors' Blog

– Lynn Jokela

We’ve blogged about trends in director pay – both for mid-cap and large-cap companies.  This Compensia memo reviews trends in technology sector director pay.  The memo examines the design and structure of director compensation programs over the last 10 years by comparing data from a 2010 study to more recent data collected earlier this year.  The memo notes that although basic pay elements have remained the same over the last 10 years, there have been changes in how the pay is structured and delivered.  Here are high-lights relating to director equity compensation:

– Over the last decade, companies have moved from using solely stock options and RSUs to almost exclusively using RSUs when granting equity awards to directors

– 95% of equity grants made today are fixed value-based grants whereas in 2010, only 30% of the companies studied used a fixed value approach

– The practice of granting new director “premium” equity awards, often with a value approximately 1.5x to 2.5x the size of an annual equity award, has  continued declining in recent years as the size of annual equity grants has slowly increased

Due to increased scrutiny of director pay, 68% of companies included in the 2020 data include a limit in their stock plan capping the amount of equity (and often, cash) compensation that can be paid to directors annually –  it’s noteworthy that these director pay limits were virtually non-existent in 2010

With respect to director “premium” equity awards, the memo discusses how increased investor and proxy advisor focus on ESG issues, along with increased attention on board composition, could lead to the return of “premium” equity awards.  Increased focus on ESG matters and certain skills and experiences of directors may well lead to increased competition for certain director candidates – if so, time will tell if this revitalizes the practice of granting “premium” equity awards, in which case eyes will be on the details about award size and related-vesting provisions.