Board of Directors Compensation: Past, Present and Future

The Harvard Law School Forum on Corporate Governance and Financial Regulation 2017-03-14

Posted by Diane Lerner, Pay Governance LLC, on Tuesday, March 14, 2017
Editor's Note: Diane Lerner is a Managing Partner at Pay Governance LLC. This post is based on a Pay Governance publication authored by Ms. Lerner.

There has been a massive shift in how outside Board Directors have been paid over the past 20 years. This has largely been fueled by changes in corporate governance practices over time. Overall, the shift has been away from paying Directors like executives and towards paying outside experts for their time and contributions during their term of service.

Historical Context

Twenty years ago, the Director pay model at a large corporation often had the following features:

  • directors were commonly eligible for certain benefits programs and pensions;
  • vesting schedules for equity awards were 3 or 4 years long, similar to those for executives;
  • equity awards were in the form of stock option grants (also used for executives), and Director awards were expressed as a number of shares rather than a grant value;
  • many companies did not differentiate pay for Committee service; and
  • Lead Director roles and Director stock ownership guidelines were absent.