The Advisors' Blog

On our page about “Director Compensation Practices,” we regularly share trend reports on the amount and form of director pay. I blogged a couple of months ago that average total compensation for directors in the S&P 500 is around $316k.

This recent Directors & Boards article, written by Jena Abernathy and Don Lowman of Korn Ferry, notes that while you don’t want to pay directors so much that it’s unreasonable or affects their independence, directors are being asked to do more & more. In addition, competitive director compensation not only attracts talented individuals who have in-demand experience & skills, it also reinforces accountability expectations.

The Korn Ferry folks also note that – unlike the annual review of executive compensation – director compensation is more typically reviewed only once every 2 – 4 years. They suggest scheduling regular board compensation reviews in order to verify that what the company is providing is competitive & reasonable, and propose these guidelines:

– Establish a timetable for board compensation review.

– Compare your board compensation program with programs of other peer organizations.

– Choose companies for comparison by size, reputation, growth, products and services, financial performance, employees, customers and investors. 

– Develop a rationale or justification for the mix of cash and equity offered to board members. 

– Engage an external compensation consultant to review your board compensation program for alignment with company goals, shareholder expectations, public perceptions and regulations.

I’m blogging about this here because it’s a responsibility often handled by the compensation committee and because Item 402 of Reg S-K, which is something we obviously cover on this site, requires disclosure about director compensation (see our Treatise chapter for the details). But as noted in the article, at some companies, this is handled by the nominating/governance committee.

– Liz Dunshee