Human Capital & Careers

Board Cash Compensation Rising

As directorships become more demanding, survey respondents anticipate increasing total cash compensation by an average of 17 percent.
Craig SchneiderApril 14, 2004

This can be a stressful time to be a member of a board of directors. This can be a very lucrative time, too.

Of course, director compensation reflects market realities. Directorships have become more demanding in the wake of Sarbanes-Oxley; the supply may be reduced as many people are unwilling or unable to serve on multiple boards; and the demand has increased for directors with finance and accounting expertise.

Sibson Consulting, a division of human resources consulting firm The Segal Co., surveyed 69 companies about their 2003 board pay and 57 companies about their plans for 2004. Sibson found that current board membership retainers generally range from $20,000 to $75,000, depending largely on company size. Committee-chair retainers average $7,270, though the retainer for chairing an audit or compensation committee can range from $7,500 to $15,000.

Companies that added or increased retainers in 2003 raised them $3,290, or 89 percent, compared with 2002. Only 10 of the 57 companies surveyed about their 2004 plans anticipate changing their chair retainer this year, but that average increase is expected to be 94 percent.

Cash is king, Sibson found. For those companies making changes — for regular board, committee, or leadership service — Sibson found an average increase in total cash compensation of 24 percent in 2003 and an average increase of 17 percent expected for 2004.

Sibson noted that since 2002, 32 percent of surveyed companies made changes to the stock compensation of board members. In the face of declining stock prices, companies tended to grant a fixed number of shares. Companies are also increasing the use of stock as part of annual board retainers and in deferred compensation.

The use of stock-option compensation is expected to fall from 68 percent of companies in 2003 to 63 percent in 2004. Restricted stock is forecast to remain nearly unchanged at 25 percent, and the use of outright grants is expected to rise slightly, to 12 percent.

Sibson expects companies will continue to create mechanisms that ensure a high level of stock ownership for directors. These can include formal requirements that directors hold a predetermined proportion of equity until they leave the board; deferred stock plans with payouts upon or after retirement from the board; and retainers paid in shares of stock, which may have restrictions that last until after board retirement.