Recent pay lawsuits against boards hasn’t curtailing payouts
Total board compensation for outside directors rose 3% last year despite recent lawsuits and settlements targeting director pay.
A study by advisory firm Willis Towers Watson found that total direct annual compensation rose to $267,500 in 2017, up from $259,750 in the previous year. Annual cash compensation rose 4% at the median, from $103,000 to $107,500, boosted by a 5% increase to the annual cash retainer. Total stock compensation increased $5,000 at the median, an uptick of 3%.
“While companies are putting in place limits to pay in response to lawsuits and rulings on the issues, those limits aren’t impacting how companies are paying directors, or how much,” says Robert Newbury, director of Willis Towers Watson's global executive compensation analysis team.
Here is a chart on director pay going back five years, put together by Willis Towers Watson for Directors & Boards:
“The increase in total pay for non-employee directors last year was driven primarily by increases to the annual cash retainer and the value of annual equity grants as companies implemented pay adjustments following regular peer benchmarking exercises,” Newbury notes. “This is consistent with rates and volumes in previous years. While there may be a perceived uptick looking at changes from the perspective of dollar values, we haven’t identified any underlying structural actions that would suggest a fundamental difference in how or how much companies pay directors (e.g. companies shifting to pay significantly more in stock).”
Here are some other key findings from the report released this month:
- Board leadership. Almost half of companies (49%) separated the positions of board chair and chief executive officer in 2017, up from 47% in 2016. Conversely, the prevalence of companies identifying a lead or presiding director decreased from 73% to 70%. Lead directors received an additional $30,000 in compensation last year.
- Stock ownership and retention guidelines. Companies continue to embrace stock ownership guidelines and retention requirements for directors. Ninety-four percent of Fortune 500 companies now have one or both mandates in place. The vast majority of ownership guidelines (84%) are based on a multiple of the annual retainer, while just over half of retention requirements (55%) require a holding period that lasts until the stock ownership guidelines are met.
- Compensation review. Nearly half of companies (49%) review their director pay programs at least annually while three in 10 (29%) review their programs "periodically" or "from time to time."
Looking ahead to 2019, Newbury predicts, “pay benchmarking will continue to drive many of the pay actions, as opposed to companies responding to governance or legislative initiatives. We expect changes to director pay programs to occur at a similar pace and rate that we’ve observed over the past several years.”