The Advisors' Blog

This 34-page memo from FW Cook analyzes 2023 director pay at 300 companies of various sizes & industries. Companies are paying directors more these days – but are also more likely to adopt total annual limits to protect those decisions. Here’s more detail:

– Total Compensation: The increases in total director compensation in 2023 for the mid-cap and large-cap companies were meaningfully larger than in 2022 (1.1% and 2.0%, respectively), likely reflecting the expanding responsibilities associated with Board and committee service, the tight talent pool for qualified directors, and the general inflationary environment.

– Annual Limits: Prevalence of annual limits on director compensation continues to increase (75% of the total sample versus 72% last year), with a growing bias towards a total compensation limit (59% versus 54% in 2022) rather than an equity-only limit (41%).

On top of regular director fees, FW Cook points out that some companies – particularly in the tech industry – are paying directors for committee membership (on top of committee chair fees):

– Approximately 75% of Technology companies provide committee member retainers; only ~33% of companies in the Industrials sector provide member retainers.

– I blogged a couple of years ago about fees for ESG committee chairs…this year’s report focuses only on the 3 “main” committees of audit, compensation, and nominating/governance.

The report also looks at the pay mix:

– The average mix across the entire sample is roughly 38% cash and 62% equity, slightly more heavily weighted towards equity compared to 2021 and 2022 (40%/60% cash/equity mix in both years).

– In the total sample, 86% of companies use a retainer-only structure (up slightly from 85% in 2022), 11% pay an annual Board cash retainer and meeting fees, and 3% use equity-only programs. Eight percent of companies pay meeting fees after a pre-set minimum number of Board meetings per year and 3% pay fees for all meetings; this is the first year that prevalence of the former has been higher than the latter.

For the companies that include equity in the pay mix, FW Cook notes that most companies are requiring directors to keep that “skin in the game” with ownership guidelines or retention requirements:

– In the total sample, 88% of companies have director ownership guidelines (same as in 2022), while stock retention requirements are less common (34% of companies).

– The most common director ownership guideline is 5x the annual cash retainer with a 5-year timeframe to meet the guideline.

– Of companies with retention requirements, there has been a trend towards requiring retention of stock awards until ownership guidelines are met (68% in 2023, up from 62% in 2022), while 31% require retention until retirement, and 1% require retention for a fixed number of years.

Check out our “Director Compensation Practices” page for additional benchmarking, info on pay-related litigation, and more.

– Liz Dunshee