March 20, 2013


Board Leadership Compensation Trends




Melissa Burek
Founding Partner [email protected] 212-921-9354
Margaret Engel
Founding Partner [email protected] 212-921-9353


Board leadership is a key issue. While the majority of large U.S. public companies combine the roles of Chair and CEO, many shareholder advisory groups, investors, and governance “watchdogs” believe that separating the two roles is a better approach. Some of the advantages cited for having a separate Chair and CEO include improved governance through stronger “checks and balances” on the authority of the CEO, improved regulatory compliance and clearer focus on succession planning.

If a separate Chair role is desired, the position may be occupied by either an executive or a non-executive. An Executive Chair is frequently a founder or a recently retired CEO who continues on as Chair for a transition period. In a few cases, particularly where a high level of Board independence is necessary, an outsider is hired into the role. In contrast, a non-executive Chair is often a sitting member of the Board whose role is expanded.

At companies where the roles of Chair and CEO are combined, the Lead Director position has become common. In CAP’s annual survey of director compensation at the 100 largest U.S. public companies, the percentage of companies with a Lead Director increased from 38% to 47% in three years, from 2009 to 2011. The percentage of companies reporting a separate non-executive Chair has stayed more stable over the period, at approximately 20%. (In public companies where there is not an independent non-executive Chair or Lead Director, there will be an independent Presiding Director, at times a rotating position.)

When determining the appropriate Board leadership structure, directors must consider which structure will be optimal for their company and its culture. If a Lead Director or a separate Chair is elected, it is essential that the separate roles are clearly defined. This will allow the Board to work more effectively with the CEO and other members of the management team, as well as to best determine the appropriate compensation for the role.

Typical Responsibilities of Various Board Leadership Roles

Typical responsibilities are summarized below. As the typical responsibilities and related time commitment can vary substantially, so does the typical compensation for each role.



Executive Chair

Provides counsel to the CEO on organization structure, financial structure and related topics

Plays integral part in strengthening relationships with external stakeholders, including shareholders and regulatory bodies

Develops and executes the company strategy with the CEO

Non-Executive Chair

Takes primary responsibility for shaping Board agendas, with input from the CEO

Facilitates discussions between independent directors on key issues outside of Board meetings

Has a critical role in succession planning

May represent the organization to external stakeholders and employees (at the board’s discretion)

Does not typically have a direct role in the company’s operations

Lead Director

Chairs executive sessions of the Board

Works with the Chairman & CEO to set agendas for Board meetings

Serves as liaison between the Board and the CEO

Facilitates discussions between independent directors on key issues outside of Board meetings

Does not typically represent the company to external stakeholders

Does not typically have a role in the company’s operations

Executive Chairman

The role of Executive Chair is often viewed as a transitional role. The role’s influence on the business can vary dramatically from company to company. As such, compensation practices vary widely across companies and will reflect each company’s specific circumstances, including:

  • Balance of responsibilities between the CEO and the Executive Chair
  • Time commitment/involvement (e.g., 1 vs. 3 days per week)
  • Expected tenure of the Executive Chair
  • Tenure and experience of the CEO
  • Equity ownership – equity grants are less likely if the Executive Chair already has a large ownership stake or if the position is viewed as short-term in nature
  • Founder vs. non-founder status

For an Executive Chair, compensation levels often reflect the individual’s prior pay package as CEO, as well as the compensation program and pay levels of the current CEO.

  • Typical pay elements include base salary, annual bonus opportunity and long-term incentive awards
  • Base salary levels may reflect the salary earned in the individual’s prior position. If the time commitment is reduced, a salary reduction may also apply
  • Long-term incentive opportunities of an Executive Chair are normally lower than what the CEO receives
  • Long-term incentive vehicles granted may vary from the company’s core executive compensation program, due in part to the expectation of a shorter tenure and less ability/time to impact long-term results

CAP consultants reviewed compensation data among 57 general industry companies with an Executive Chair, comparing Executive Chair pay to that of the CEO. We found that, at median, Executive Chair compensation (including salary, bonus and long-term incentives) was approximately 70% of the CEO’s compensation.

2012 Executive Chair Data

Exec Chair Salary
as % of CEO Base Salary

Exec Chair TCC
as % of CEO TCC

Exec Chair TDC
as % of CEO TDC










57 General Industry Cos.

(Median Revenues of $2.4B)










For reference, below is a breakout of the pay package for three recent, high profile Executive Chairs.

Recent Executive Chairman Compensation Packages at Large Organizations



Kraft Foods Inc.

Sara Lee





Executive Chairman

Raymond J. Lane

John T. Cahill

Jan Bennink

Date Hired as Executive Chairman

September 2011

January 2012

January 2011

Previous Role

Non-Executive Chair

Outside / New Hire

Non-Employee Director

Base Salary




Target Bonus



(100% of base)


(175% of base)

Long-Term Incentives

$8.44M (1)



Target Total Direct Compensation (TDC)




TDC as a % of CEO




LTI Award Vehicle

LTI Grant Frequency (annual, one-time)

20% Time-Based Stock Options

80% Performance-Based Stock Options


75% RSUs

25% Stock Options

Not disclosed

50% RSUs

50% Stock Options

Not disclosed


Time-Based: 3 Year Ratable Vesting

Performance-Based: Requires 120-140% price appreciation

3 Year Cliff Vesting (RS)

3 Year Ratable Vesting (SO)

2 Year Cliff Vesting

LTI Award Vehicles Different from Executive LTI Program




  1. Excludes fees as non-executive Chair, including $2.19M RSU award
  2. 1M stock options were awarded (200,000 options with 3-year ratable vesting; 400,000 options vest upon stock price appreciation of 120% from grant price; 400,000 options vest upon stock price appreciation of 140% from grant price).

Non-Executive Chairman / Lead Director Compensation

Compensation packages for non-executive Chairs and Lead Directors typically consist of the core compensation program for non-employee directors along with an additional stipend (or premium) that reflects the responsibilities and time commitment of the role. This approach appropriately recognizes the differential between a leadership position and other directors, with the magnitude of the premium reflecting the additional responsibilities.

CAP’s market data indicates that all companies with a non-executive Chair provide a premium for the role, and 69% of companies provide a pay premium for the Lead Director role.

Non-executive Chair pay is typically delivered in one of two ways:

  • An additional retainer paid in cash or stock, in addition to the regular outside director pay program
  • A separate fixed dollar amount provided in cash, stock or a combination, in lieu of the regular outside director pay program

As indicated below, the premium provided to a Lead Director is often much smaller than the premium provided to a non-executive Chair. Our data indicates that a non-executive Chair receives a median premium of +65% compared to a regular outside director’s package. For a Lead Director, the median premium is +10%.


Non-Executive Chairman and Lead Director Premium Compensation

General Industry Companies with Median Revenues of $2.3B

Leadership Position

No of Cos.

Prevalence of Cos. Providing Additional Compensation

Multiple of Non-Employee Director Compensation (Median)

Primary Reference

Additional Premium – Median

Additional Premium – Range

Non-Executive Chairman





$20k – $577K

Lead Director





$5K – $140K


The structure and amount of compensation paid to Executive Chairs differ from non-executive Chairs and Lead Directors, a direct reflection of the roles, duties and time commitment required for each position.

Executive Chairs participate in the company’s executive compensation programs. Base salary, annual incentive and long-term incentives are commonly offered, yet pay programs are situation-specific and frequently transitional in nature. The Executive Chair’s expected tenure and perceived ability to influence longer term results are considerations that impact the amount and form of incentive compensation used.

As companies increasingly focus on improving Board independence, it will be important to evaluate whether or not separate Chair and CEO roles are appropriate. Companies should assess which organization structure makes sense given its unique circumstances. Companies anticipating a transition period due to executive turnover, the need to improve governance or a corporate transaction should re-assess the appropriate structure necessary to best navigate through turbulent times.