The Salary Sage

Board of Directors Compensation

Board of compensation depends on a variety of factors, including company size, maturity, and industry. A 2007 survey, published by Total Compensation Solutions, a consulting firm based in Armonk, New York, summarized compensation data from the Boards of 332 organizations in a variety of industries throughout the US. In terms of cash compensation, this is what they found:

 

	OVERALL	PUBLIC	PRIVATE
CHAIRMAN	$45,337	$43,963	$55,162
DIRECTOR	$38,914	$40,643	$26,906

In addition to cash compensation, board members also receive:

Travel reimbursement. Airfare, lodging, meals, ground transportation, etc. for attending all Board meetings.

Stock Options or Grants. Depending on the company type and its future public offering plans (if it's privately held), stock options are usually the primary means of compensating board members. The grants are sized to give board members an incentive to assist the company and to give them a stake in the success of the company. Often board members are given the opportunity to invest in the business.

Cash stipends. Board members are generally given a stipend ranging between $500 and $2,000 for each meeting they attend. Many companies use a combination of an annual retainer and a per-meeting fee. A typical retainer for a small business ranges from $5,000 to $10,000 a year.

Insurance. Because of the potential legal liabilities associated with being on a board, board members often insist that a company carry insurance to protect the officers' and directors' personal assets if the company is sued. The cost of such coverage is usually prohibitive for small early-stage companies, but it is essential once a company goes public.

The largest component of a Board Members compensation, by far, is the stock options. There are no hard rules for options grants, but they can be worth millions in large, successful publicly-traded companies. Usually board members' options vest over several years. Small startup businesses trying to entice top talent to take an active role may provide Board members with as much as 2 percent of a company.

What Do Board Compensation Committees Actually Do?

With executive compensation so much in the news these days, I thought it might be a good idea to take a look at the rolls and responsibilities of the people trying to reign in this madness. Euphemistically called the Board of Director's Compensation Committee, this small group works quietly behind the scenes assembling pay packages for many of the most powerful and influential persons on the planet. Here's what they do.

(The following is a compilation of, and excerpts from, the by-laws of several major public companies.)

 

PURPOSE:
The Committee is responsible for reviewing and approving, on behalf of the Board of Directors, the amounts and types of compensation to be paid to the Company's executive officers and the non-employee directors; reviewing and approving, on behalf of the Board of Directors, all salary, bonus, perquisites and equity compensation to be paid to other Company employees; and administering the Company's stock-based compensation plans.

MEMBERSHIP:
The Committee normally consists of a between two and five members of the Board of Directors. The members of are normally recommended by the Governance and Nominating Committee and are appointed by and serve at the discretion of the Board of Directors.

RESPONSIBILITIES:

1. Reviewing and approving the compensation policy for executive officers and directors of the Company, and other managers as directed by the Board.
2. Reviewing and approving all forms of compensation to be provided to each executive officer and non-employee director of the Company.
3. Acting as administrator of the Company's compensation plans, including granting awards to each executive officer and director, reviewing aggregate awards for other eligible individuals and determining the terms and conditions of such awards. The Committee also makes recommendations to the Board of Directors on amendments to the plans and changes in the number of shares available.
4. Reviewing and approving the information to be included in the Company’s annual proxy statement and/or Annual Report.
5. Reviewing and discussing the Company’s management succession plan at least annually, as well as the Company’s leadership development strategies and executive retention and diversity strategies.
6. Evaluating the performance of the Chairman and the Chief Executive Officer (and such other executive officers as the Committee deems appropriate) in light of the Company's current business environment and the Company's strategic objectives.
7. Reviewing and approving recommendations regarding the overall salary and bonus budget and guidelines for all Company employees.
8. Evaluating the need for, and provisions of, employment contracts or severance arrangements for executive officers.
9. Monitoring data on the Company's employee population (e.g., total compensation costs, compensation benchmark data, employee diversity, turnover levels, etc.).

In carrying out these responsibilities, the Committee has the power and authority to retain compensation consultants, outside counsel and other advisors and has the authority to approve the fees and other terms of these engagements.

AVAILABLE RESOURCES:
The Committee is granted access to whatever resources are required to discharge its responsibilities.

MEETINGS & REPORTS:
The Committee usually meets at least four times a year, generally in conjunction with the regularly scheduled meetings of the Board of Directors. The Committee maintains written minutes of its meetings, which are filed with the minutes of the meetings of the Board of Directors.

DIRECTOR COMPENSATION:
In return for their service on the Board, Directors normally receive some or all of the following forms of compensation: Travel reimbursement, Cash Stipends, Stock Options, and Errors & Omissions Insurance. The specific amount varies based on company size, maturity, and industry. In large, publically-traded companies, the stock options alone can be worth millions.