Trends in Director Compensation

03/21/2014 Directors Institute

Average Director Compensation Continues to Increase in the S&P 500

Since mandatory compensation disclosure requirements took effect in 2007, total compensation for board members at S&P 500 companies has continued to grow, recovering and skyrocketing after faltering during the 2008 financial crisis.[i] Average total director compensation for 2013 was $249,168, the highest yet[ii]. For comparison, the average total compensation for a different representative sample of 300 publically traded companies was $236,650 for large cap companies (>$5B), $182,500 for mid cap companies ($1B to $5B), and $125,260 for small cap companies (<$1B).[iii]

Comp1

Since 2007, compensation has roughly been divided 60/40 between equity and cash in the S&P 500.

Comp2

Equity is typically offered primarily in the form of stock grants, with the remainder offered in options. Over the past five years, the ratio of equity as stock grants to options has steadily increased.

Comp3

The relative increase in stock grants suggests a more concerted effort to encourage directors to maintain some ownership interest. This trend may be attributable to the view that directors’ interests are aligned with those of the shareholders if they have equity in the business. However, this must be tempered with the need for director independence.

Similarly to total compensation, average retainer, board meeting fees, and committee-related retainers and fees have all steadily increased over the last decade, with the exception of a slight dip in board meeting fees for 2013.[iv]

Comp4

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[i] All S&P 500 data in this post is sourced from Spencer Stuart’s Board Index 2007-2013.

[ii] Other sources have reported total director compensation in the S&P 500 in 2012 & 2013 as marginally higher.

[iii] Sourced from Frederic W. Cook & Co., Inc.’s 2013 Director Compensation Report. Values ranges refer to market capitalization.

[iv] Among S&P 500 companies that reported this data.