December 17, 2020
Director Pay: 15% of Companies Temporarily Cut Retainers
– Liz Dunshee
This 29-page memo from FW Cook analyzes 2020 director pay at 300 companies of various sizes & industries. Here’s what it says about the pandemic’s impact on board compensation:
Due to the COVID-19 pandemic, 15% of S&P 500 companies and roughly 13% of Russell 3000 companies reported taking pay actions through the third quarter of 2020, which generally consisted of cash retainer reductions. The median decrease in director compensation was 50% at S&P 500 companies and 40% at Russell 3000 companies. The compensation analysis excludes any temporary reductions to director compensation implemented due to the pandemic.
Other than these temporary cuts, director compensation has been pretty static at most companies. Here’s another excerpt:
Year-over-year increases to total compensation, at the median, were modest among large-cap and mid-cap companies compared to small-cap companies, which had a relatively significant increase: the large-cap median increased 1.6% to $290,000, the mid-cap median increased 1.7% to $216,950, and the small-cap median increased 5.1% to $163,500. Changes were relatively stable across industries; we observe that Financial Services, Industrials, and Technology companies had no increases in median total compensation, while Energy and Retail companies had increases of 3% and 2%, respectively.
The 2020 study includes 275 companies that were also included in the 2019 study (“legacy companies”). Approximately 30% of legacy companies increased compensation by more than 1% and compensation increased 9% at the median among these companies; increases were generally weighted more towards equity than cash, with a median cash value increase of 8% and a median equity value increase of 9%.
Director compensation structure remains consistent with prior years, with an average mix of 57% equity and 43% cash across the entire sample. Small-cap companies tend to have the highest cash weighting (average of 47%) and large-cap companies tend to have the lowest (average of 37%). Most companies continue to use fixed-value equity award guidelines, with full-value stock awards remaining the most common form of equity compensation and providing the most consistent means to align director pay with shareholder interests. Equity grants most commonly vest immediately, or cliff-vest after one year.