The Advisors' Blog

With more companies searching and competing for diverse and talented directors, private companies are revisiting director pay plans to ensure they’re competitive. A recent NACD blog from Susan Schroeder of Compensation Advisory Partners (CAP) takes a look private company director comp programs and outlines considerations for designing and implementing a new program.

One of the items the blog covers relates to which pay components to adopt. The memo discusses use of long-term incentives in director pay programs and says we may see increased use of these incentives in larger private companies as they compete for board talent. When it comes to director cash compensation, many public companies prefer a “retainer-only” pay model, which is certainly easier for planning purposes. This excerpt discusses a few considerations for “retainer-only” and “meeting-fees only” cash component pay models:

A CAP-MLR Media private company survey that found 50% of private companies still use per-meeting fees to compensation directors. The retainer-only pay model makes sense for companies that wish to pay for overall board roles rather than time spent at individual meetings. Indicators that favor this pay model include material director time required outside of meetings, ambiguity about the definition of a formal meeting, a more predictable board workload, and a desire for administrative simplicity. The memo includes a range of board retainers that increase for companies with higher revenues.

A “meeting-fees only” pay model makes sense if most of the board work is tied to the meetings themselves. Per-meeting fees can be set to take into account typical meeting length, preparation, and follow-up time. Indicators for this pay model include an unpredictable number of meetings, comfort with the administrative efforts required to track and compensate meeting attendance, and the majority of work accomplished during the board and committee meetings. The blog says $2,500 is the median meeting-only fee, with $1,000 the median for telephonic/virtual meetings.

There are also companies that fall somewhere in the middle with a combination of a retainer and meeting fees. Some companies with the potential for a flurry of meetings can stipulate that the basic retainer covers a certain number of meetings. If meetings are required above the number covered by the retainer, then meeting fees will be paid to directors for the extra workload.

– Lynn Jokela