In his article, "How Much Should I Pay The Directors On My Board In 2020?" Bernie Tenebaum, Managing Partner of Lodestone Global, a strategy consulting firm based in New Jersey, provides some guidance on the level of compensation. Taking information from his firm's 2020 Private Company Board Compensation Survey, Mr. Tenebaum presents the following highlights:
- "Median total compensation was $43,500, ~4.8% higher than the $41,500 reported last year. The 4.8% increase (+4.5% in 2018) is the result of a 5.5% increase domestically and a 3.6% increase internationally. Technology firms saw the most growth this year, paying their directors +10% more than in 2018.
- "Median revenue of the survey was $100m and the median number of employees was 250.
- "Boards continue to have a strong impact on company performance. 94% of companies reported increased revenues and 92% reported increased EBITDA. Since the respondent joined the board, companies reported an average revenue increase of ~50%. 53% of the participants categorized their boards as 'Indispensable' or 'Very Effective' at driving corporate strategy. These results support the notion that a board, particularly with the right directors, can be essential to achieving corporate goals and improving profitability.
- "Similar to last year, 21% (22% in 2018) of respondents reported using equity as part of their compensation schemes. These schemes tended to target a specific value of the company or shares outstanding. For the fourth year in a row, total compensation for these schemes were paid roughly half cash and half equity."
|Source: Lodestone Global|
As reflected in the historical compensation data chart above, Mr. Tenebaum explains that "directors earned a $31k retainer, $2,750 per meeting and $750 per formal teleconference. We have seen a steady increase in director pay since 2013. For the second year in a row, the growth in total compensation was primarily driven by U.S. companies, particularly $50-$500m. Domestic compensation grew another 6% year on year, after growing 10% last year. The U.S./International compensation spread has widened to $10,600 (US directors now earn 29% more than their international counterparts). This may reflect the strength of the U.S. markets, both in terms of employment and equity market valuations."
What sources do you use to determine how much a company should pay its board directors?