Pay for nonemployee board members at the largest US companies rose to a new high in the past year, boosted mainly by higher annual stock compensation.
That’s according to research by Towers Watson, which reviewed data from 470 companies that filed 2014 proxy statements before June 30th 2015.
Total compensation for outside directors rose 4% at the median over the previous year, from $240,000 to $250,000. Fifty-six per cent of that amount comes from stock compensation, and 44% is cash.
One expert on corporate governance said the pay increases are fair, given that boards are moving to a more advisory role.
“The time involvement, the risk, the expectations – they are all considerably higher now,” said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. “The board has always been a monitor, but there’s a lot more to monitor, and expectations from investors of that monitoring have gone up.”
The median value of cash compensation remained flat at $100,000 for the second year in a row, Towers Watson said. Stock compensation value rose 7% at the median, to almost $140,000, after increasing 4% in 2013.
Director pay is highest in the health-care sector, with median compensation of $285,785. Pay for board members in the energy sector is next at a median of $279,548. The lowest-paying sector, utilities, has median pay of $228,329. The information technology sector has the highest percentage of director pay based on equity (66%), followed by health care (60%).
Twenty-seven per cent of companies that adopted or amended stock plans that include directors as participants also included a director-specific stock award limit, up from 22% that adopted such limits in the 2014 proxy season.
Paul Conley, US West division leader for Executive Compensation at Towers Watson, said in a news release that companies are continuing to simplify director pay programmes by cutting back on per-meeting pay and going to a higher cash retainer for board service. “Companies are paying for directors’ overall contributions as opposed to paying for the time they devote to the role,” he said.
—Neil Amato (firstname.lastname@example.org) is a CGMA Magazine senior editor.