Partners Matt Vnuk and Dan Laddin wrote an article for The Corporate Board discussing best practices for board of director compensation. Best practice topics covered in this article include compensation philosophy, frequency of pay changes, pay levels, pay program design, equity ownership, and communication / documentation. While global “pay equity” debates rage over the compensation of top executives versus rank and file employees, pay setting for corporate board members has also drawn unwelcome criticism. Though the 2023 court case clawing back $735 million in pay to Tesla directors is an outlier, how well is your board shaping—and communicating—its own pay plan?
While we acknowledge that executive com- pensation is a factor in corporate “short termism,” what if the amount of pay is not the problem we think it is? Could it be that the subtleties of compensation design today push executives to take a “get rich and get out” approach—including some pay reforms that we hoped would encourage a long-term focus.
As American boardrooms have strengthened the status of lead directors (and, increasingly, split the roles of CEO and chairman), this board leadership evolution has driven many governance changes. One question remains unresolved: How should we set the pay for an independent chairman, a lead director, or executive chairman?
