Big Company Director Compensation Continues to Rise (Modestly)

Large cap companies saw a modest 2% increase in total compensation for non-employee directors according to FW Cook’s 2022 Director Compensation report which reviews the pay practices of a 300 company sample across industries.   This brings median total compensation to $300,000 annually, typically allocated as 60% equity and 40% cash. The average pay mix is fairly consistent across small, mid and large cap companies with equity weightings higher at larger organizations. The Technology sector has the highest portion of compensation in equity – at 71% – while Financial Services allocates 56%.

The survey includes benchmarking data for each pay component as well as specific market data for Committee Chairs, Board Chairs and Lead Directors across sectors. While many of the pay practices have not changed over the past year, the report highlights some key trends of board service including:

• For cash compensation, retainer-only payments continue to be the predominant structure increasing in prevalence from 83% to 85%. The use of meeting fees continues to decline at both the board and committee level.
  
  
• Nearly all equity grants (95%) are awarded as full-value stock grants (no stock options). The Technology and Industrials industries award stock options either in conjunction with share awards or in lieu of stock. 90% report immediate vesting or 1 year or less vesting schedules.
  
  
• Limits on director compensation increased from 69% in 2020 to 72% and most limits are placed on a total compensation perspective rather than an equity only limit.
  
  
• Ownership guidelines were reported by 88% of respondents and typically require a holding of 5X annual retainer at 5 years of service. 62% require retention of stock until the ownership guidelines are satisfied while 37% have policies to require retention until retirement.

A particularly interesting finding is that median retainers for members of the Compensation and Audit Committees are now even ($10,000); the retainer for the Compensation Committee Chair has risen to $20,000 with Audit at $25,000. Female representation among Compensation Committee Chairs rose slightly from last year, but is still only 25% of all Chairs.