Each year CAP analyzes non-employee director compensation programs among the 100 largest US public companies. These companies are trendsetters and can provide early insights into evolving pay practices across the broader public company marketplace. This report reflects a summary of pay levels and pay practice trends based on 2023 proxy disclosures.

Key Takeaways

• Median total board compensation increased 2.6% driven primarily by increases in equity grant value
• Meeting fee prevalence continues to decline; only four companies now provide board meeting fees, down from eight last year
• Additional compensation for the Lead Director role is now between 1.67x and 2.5x that provided to the Chairs of the Audit, Compensation and Nominating/Governance Committees, at median

Looking Ahead

• We expect continued increases in 2023, in line with historical trend of approximately 2% to 4%
• In addition, we also expect to see continued increases the additional retainers provided to Lead Directors and Committee Chairs

CAP Findings

Board Compensation
median is up 2.6% vs. prior year

• Total Fees. Median board compensation increased by 2.6%, to $325K.
• Pay Structure. Companies rely mainly on annual retainers (cash and equity) to compensate directors. Pay programs for large companies are simple and tend to not use meeting fees. This year saw a 50% drop in companies who disclose using meeting fees, excluding those with meeting thresholds in place, with only four companies now providing board meeting fees. We support this approach as it simplifies administration and the need to define what counts as a meeting, though it may not be appropriate in all situations. Among the four companies that do provide meeting board fees, three have non-standard ownership.
• Equity. Consistent with prior years, providing full-value equity awards (shares/units) is the standard, with only 2% providing stock options (one of these companies grants both stock options and RSUs). Almost all companies denominated equity awards using a fixed value and not using a fixed number of shares. Using fixed value is generally considered best practice as it manages the “target” value awarded each year. This is consistent with practices observed in prior years.
• Pay Mix. On average, total pay was comprised of 63% equity and 37% cash, which is consistent with findings during recent years.
• Form of Increase: 17 percent of companies disclosed increases to board cash retainers, while 34% of companies disclosed an increase to their annual equity grant.

Committee Member1 Compensation
limited change vs. prior year

• Overall Prevalence. 36% of companies paid committee-specific member fees for Audit Committee service, while only about a quarter of companies paid fees for members on other committees. Companies rely more on board-level compensation to recognize committee member (non-Chair) service, with the general expectation that all independent directors contribute to committee service responsibilities.
• Total Fees. Of the companies that paid committee member compensation, the median remained flat at $15K for both Audit and Compensation Committees, while there was a modest 4% increase, to $12.5K, for Nominating & Governance Committee members.

Committee Chair1 Compensation
limited change vs. prior year

• Overall Prevalence. More than 95% of companies studied provided additional compensation to committee Chairs to recognize additional time requirements, responsibilities and reputational risk.
• Fees. Median additional compensation increased for the Audit Committee Chair from $28K to $30K while additional compensation for the Compensation and Nominating & Governance Committee Chairs additional compensation remained flat at $25K and $20K, respectively.

Committee Meetings
Audit Committees are meeting more than two times per quarter

• At median, the Audit Committee met the most, with 9 meetings, while the Compensation Committee met 6 times and the Nominating & Governance Committee meeting 5 times.

Independent Board Leader Compensation
standard to provide additional pay for these roles

• Non-Exec Chair. Additional compensation is provided by nearly all companies with this role. Median additional compensation was $200K in 2022. As a multiple of total Board Compensation, total Board Chair pay was 1.65x that of a standard Board member, at median. The Non-Exec Chair role is less standardized than the Lead Director role.
• Lead Director. While median additional compensation remained flat versus prior year, pay for this role continues to increase in general, which is indicated by the 75th percentile additional pay for this role increasing year-over-year. Median additional compensation provided for this role is approximately 67% greater than that provided for the Audit Committee Chair role, at median, and approximately 100% and 150% higher than additional compensation provided for the Compensation and Nominating/Governance Committee Chair roles, respectively. Additional compensation is provided by nearly all companies with this role2. The differential in pay versus non-executive Chairs is in line with typical differences in responsibilities. As a multiple of total Board Compensation, total Lead Director pay was 1.15x that provided to a standard Board member, at median.

Pay Limits
limited change vs. prior year

• 75 percent of companies have a shareholder approved limit in place for director compensation, up from 73 percent in the prior year.
• Prevalence of limits that apply to both cash and equity-based compensation (i.e., total pay) has continued to be slight majority practice with 51% of companies putting a limit on total pay.
• Director pay limits are in place largely due to advancement of litigation where the issue has been that directors approve their own annual compensation and are therefore deemed to be inherently conflicted.
• Similar to last year, limits typically range from $600K to $1M, with a median limit of $800K.
• The limits are generally much higher than annual equity grants and/or total annual compensation; e.g., more than one-third of limits are equivalent to more than 5x the annual equity grants.

Limit Multiple Range	Prevalence
< = 3x annual equity	33%
3.01x – 5x annual equity	33%
5.01x – 7x annual equity	11%
> 7x annual equity	23%

• Some companies exclude initial at-election equity awards, committee Chair pay, and/or additional pay for Board leadership roles from the limit, but such a practice is the exception not the norm.
• The higher limits above are intended to address situations like having to pay higher amounts to a non-executive Chair. However, in terms of potential perceived conflict of interest when it comes to setting pay for a non-executive Chair, the incumbent can be recused from discussions and the vote on their own pay.

Equity Retention
most companies have a minimum stock ownership guideline

• It continues to be minority practice to settle equity awards at or after termination of board service (e.g., at/post-retirement from the board); near-term, we do not expect this prevalence to increase.
• The prevalence of having a special equity settlement provision other than at vest, is slowly declining as companies are instead utilizing a stock ownership guideline (SOG) as a share retention tool for directors.
• 90% of companies have a minimum stock ownership guideline in place for outside board members, up from 88% in 2021.
• In addition to the SOG prevalence rising, holding requirements are also on the rise as well. This year, 39% of companies disclosed having some sort of holding requirement compared to only 36% last year.
• CAP agrees with the majority practice of utilizing a SOG in combination with a holding requirement as companies would be better served to have a traditional ownership guideline as a multiple of annual retainer as opposed to an equity settlement at retirement.
• 86% of companies with a minimum stock ownership guideline in place use a “multiple of retainer” approach, such as 5.0x the annual cash retainer must be achieved within five years.

Some Changes CAP Suggests Companies Consider

• Communication and Education: Not all companies get this aspect of effective compensation programs right. Oftentimes, distributing a simple summary (or “cheat sheet”) of the director pay program to participants can be an effective tool, that limits misunderstandings and an help prompt questions, as well as support consistent understanding of the program, philosophy and rationale behind the program.
• Recruiting New Directors. As boards look to refresh and diversify their membership, this may be the time to re-visit initial at-election equity awards for new directors. At-election grants can be a way to differentiate your company’s pay program in the recruiting process without a more costly increase to standard director pay levels.
• Board Leadership Roles. Taking on the role of non-executive Chairperson, Lead Director or Chair of a major Board committee can come with considerable additional time requirements, responsibilities, and reputational risk, yet additional compensation provided for most of these roles only reflects a modest premium on the standard director pay program. Providing greater additional compensation for the role of Lead Director of Chair of a major Board committee should be considered, in recognition of the typical time requirements, responsibilities and reputational risk individuals in these roles take on.
• Stock Ownership Requirements. Many boards, especially among the largest companies, require equity-based compensation be deferred until retirement (i.e., termination of board service). While we support alignment of director and shareholder interests through equity compensation, a standard stock ownership guideline (e.g., multiple of annual cash retainer) may be a competitive advantage when recruiting new directors who may be more focused on current compensation.

Historical 3-Year Look

Average Total Board Compensation ($000s)3

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