Compensation
Compensation
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.
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
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.
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.”
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.
Average Annual Board Retainer ranges between €11k to €330k, with a median of €141k
Average Annual Chair retainer ranges between €21k to € 4340k (which is an outlier), with a median of €333k
90% of the companies in our study use Committee Chair fees as a component of board member compensation, most popularly used in the EMEA
64% of the companies studied use Committee Member fees as a component of board member compensation, most commonly in the EMEA
Less than 35% of the companies studied use Board/Committee Meeting attendance fees, most popularly used in the EMEA
Digital Leads
Amadeu Porto, Joanna Scheffel
Design Team
Aditya Gupta, Arnab Kar, Kamaljit Marwaha, Dapinder Pal Singh Bahl, Ginlian Guite and Richard Khuptong
The authors would like to thank the Chair/Board members who participated in the survey, Egon Zehnder consultants for their internal/external insight and EZ colleagues who contributed to this study: Amit Kumar, Devyanee Kaushal, Johanna Prasch, Luis Fuhrer, Sonika Ganjoo and Svenja Weitzel.