Compensation
Simplifying and reflecting on compensation is key
While it is nearly impossible to make cross-regional comparisons with board director compensation (also taking into account the number of board meetings and industry), there are a few trends that we have seen.
For most public boards, director compensation is a mix of the following:
- Fixed board fees (annual, one-time sum)
- Leadership role compensation (chair and committee chair)
- Committee fees
- Stock (a mix of annual award and dividends)
- Perks, travel allotments, short-term bonuses, one-time stock awards, etc. (varies according to market, industry, etc.)
Number of companies which apply a specific remuneration component
Population: 100
*Fixed retainer includes both for Chair and Independent Board Director roles
About 94% of the companies studied use a fixed retainer fee, followed by committee chair (90%) and committee member fee (64%). Committee chair/member fees are most popularly used in Europe.
Both board and committee meeting attendance fees, as well as equity compensation, are less widespread practices across the globe. Less than 20% of the companies studied use equity, though it is common practice in the United States, with equity share ranging between 50% to 60% on average. Equity is typically composed of stock awards and has a longer vesting period that often extends beyond the term of a director. There are a few markets outside of the United States that employ equity to compensate board directors on a discretionary basis, including Switzerland and Ireland. In the APAC region, you are likely to only see that companies that are listed on the Australian Securities Exchange (or ASX) use share-based payments of compensation.
Population: 100
Share in %
Corporations which only pay in compensation terms.
Corporations with equity as part of director compensation.
To prepare for increased scrutiny, many corporations have begun to simplify their pay structures, focusing on reasonable annual cash retainers and stock awards, while eliminating committee member pay and leadership retainers.
Additional Forms of Compensation
There is ongoing debate on whether board directors can be paid in LTI. There are voices cautioning against this type of compensation, as it might undermine the independence of board directors, while others feel strongly that compensation needs to be more linked to the long-term performance of a company, similarly to PE companies. As an alternative, some respondents suggested linking compensation to long-term ESG performance.
Some boards also bifurcate pay programs by increasing pay for directors who live more than 6-8 hours of travel from company headquarters.
“There needs to be alignment across countries on whether non-executive directors can be compensated in a way that is tied to the financial success of a company.”
“In public companies, board directors represent stakeholders, not just shareholders. A share plan for board directors can give the wrong impression.”
Pay Levels
The level of pay for board directors varies across sectors and regions, in accordance with fluctuating time commitment, risks, and role complexities. Boards today discuss more in every meeting, meet more frequently, and have increasing commitments outside of the boardroom. Because of this, boards are paying more attention to director pay, looking for outliers from their local, regional and global peer groups to attract the right talent. As one respondent said, “If the company requires board directors to have more meaningful engagement and make an impact on the company's strategic imperatives and long-term business, then the company should think of providing a more innovative compensation package.”
Most board experts and practitioners in our study suggest an increase in compensation for public company directors due to increased complexity, risk, and related time commitment. 81% of respondents agree that “compensation of board directors should be reviewed for potential change.” However, a small group – especially some of the board practitioners – were happy with the way compensation is currently handled.
Compensation Benchmark Results - Our most important findings in numbers
Average Annual Board Retainer ranges between €11k to €330k, with a median of €141k
- Board retainers remain the highest for Financial Services, followed by Health and Technology.
- Regionally, North America reports the highest median value, followed by APAC, UK and EMEA.
Average Annual Chair retainer ranges between €21k to € 4340k (which is an outlier), with a median of €333k
- Chair retainers remain the highest for Health, followed by Financial Services and Energy.
- Regionally, the UK reports the highest median value, followed by APAC, EMEA and North America (it’s common for US companies to have a combined CEO-Chair role with no separate retainers).
90% of the companies in our study use Committee Chair fees as a component of board member compensation, most popularly used in the EMEA
- The Automotive sector reported the highest median for Committee Chair fees at €68k, followed by Financial Services (€58k). For the overall set, Committee Chair fees average €49k.
64% of the companies studied use Committee Member fees as a component of board member compensation, most commonly in the EMEA
- The Energy sector reported the highest median for Committee Member fees at €57k, followed by Chemicals (€48k) and Consumer (€46k). For the overall set, Committee Member fees average €35k.
Less than 35% of the companies studied use Board/Committee Meeting attendance fees, most popularly used in the EMEA
