The Evolution and Current State of Director Compensation Plans

The Harvard Law School Forum on Corporate Governance and Financial Regulation 2017-09-05

Posted by John Ellerman, Peter England, and Blaine Martin, Pay Governance LLC, on Tuesday, September 5, 2017
Editor's Note: John Ellerman is a partner, Peter England is a consultant, and Blaine Martin is a consultant at Pay Governance LLC. This post is based on a Pay Governance publication by Mr. Ellerman, Mr. England, and Mr. Martin.

Over the past 20 years, there has been a major shift in how large public companies have compensated their outside Directors. [1] These changes have included the elimination of Board meeting fees, granting of equity compensation in the form of full-value shares, the elimination of Director retirement plans and other perquisites, adoption of stock ownership guidelines for Directors, and giving of supplemental cash retainers to Committee Chairs in recognition of their substantial time commitments to committee work.

A recent Pay Governance review of Director compensation among S&P 500 companies reveals that these trends have become embedded in the policies and compensation in large U.S. companies. [2] The survey, which reports 2016 Board compensation, shows that the median total direct compensation awarded to an S&P 500 corporate Director was $265,487. This represents a <1% (i.e., 0.5%) annual compensation increase for 2016 compared to 2015.