The Advisors' Blog

ESGauge, The Conference Board and Semler Brossy recently issued a director compensation report reviewing trends and developments at Russell 3000 and S&P 500 companies. The report covers a lot of ground and includes observations about a few things to watch as we move forward from the pandemic and 2020. Due to market volatility over the last year and focus on board diversity, the report says companies may need to find ways to keep their director compensation programs attractive to new slates of director candidates. Here’s an excerpt:

Recruiting a new breed of diverse directors with different experience and skills may require significant changes to director pay structures, including adjusting compensation levels upwards to make posts more attractive to in-demand talent. For directors who are not former CEOs, having pay in the form of equity that is likely locked up until retirement may not be much of an incentive to join a board, leading companies to seek new, creative solutions such as signing equity grants or different equity/cash ratios.

In the face of economic concerns, companies are reluctant to permanently increase compensation levels for newly recruited directors; therefore, they may favorably view the use of sign-on equity grants or the offer of a choice among compensation packages with different equity/cash mixes. Some directors, especially those who may not be coming to the board with a long career as a corporate executive, may benefit from these one-time grants and a somewhat higher portion of cash compensation. To avoid any negative attention from proxy advisors or shareholders’ concerns, boards should disclose such awards and explain their rationale, especially that they are non-recurring payments (if that is indeed the case).

Another item to watch includes committee compensation, which the report says could face a reshuffle as workloads change among committees due to the prevalence of ESG-related considerations. Also keep potential ceilings for director pay on the radar as the report says they could become more common.

– Lynn Jokela