Board Pay Rose 4% in 2016

By Eve Tahmincioglu

Pay for outside directors at the largest companies in the nation rose 4% last year, according to a Willis Towers Watson study released this week.

Total compensation was up 2% at the median compared to 2015, bringing the payout to $260,200 from $255,800. That includes a pay mix of 43% cash and 57% equity.

“We have settled into a ‘new normal’ on compensation for outside corporate directors following several years of significant changes that occurred following the financial crisis,” says Richard Bannister, North America practice leader, executive compensation at Willis Towers Watson.    

“Most of the modest increase in director pay we saw can be attributed to a small rise in cash compensation (4%) and an even smaller increase in equity  (2%). In terms of cash compensation, we found an emphasis on companies using retainers versus fees for meetings. Retainers for committee members are gaining in popularity but still remain a minority practice. Retainers for committee chairs, however, are common. Companies are also placing greater emphasis on restricted stock and full value shares rather than stock options for directors.”

Here are some other key findings:

• Median annual cash compensation settled at $105,000 following a 4% increase from $101,000. The growth was driven primarily by the median board cash retainer jumping 6% from $90,000 to $95,000, as variable cash pay for board and committee work remained relatively the same. The median annual stock values increased 2% from $147,650 to $150,000. Ninety-two percent of grants are based on a pre-determined value, as fewer than one out of 10 (8%) equity grants are based on a fixed number of shares. The use of the fixed-value form of equity-based compensation avoids volatility in the value of directors’ grants as company stock prices change from year to year.

• The year-over-year increases observed were the result of just over one-third (34%) of companies making adjustments to the core elements of their pay programs. These companies took a more balanced approach to pay adjustments this year, as 56% of the companies making changes modified both the cash retainer and annual stock grant, compared with only 42% adjusting both components in the previous year. Furthermore, the median value of the increases to the cash retainer and annual stock grant were each $10,000, compared to $10,000 for cash and $15,000 for stock in the prior year.

View the full report here.