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 the most recent 2024 proxy disclosures.

Key Takeaways

• Median total board compensation was flat year-over-year ($325K)
• Similarly, compensation provided for service in board and committee leadership roles was also flat versus prior year at median
• Meeting fees and use of stock options continue to be uncommon, with only 6% of companies paying board meeting fees and only 2% granting stock options to their directors

Looking Ahead

• During the next year, we expect a modest increase to median pay levels for standard board service
• We also expect to see continued focus on the additional retainers provided to Lead Directors and Committee Chairs

CAP Findings

Board Compensation

• Total Fees. Median board compensation was $325K, which was flat year-over-year. At both the 25th and 75th percentiles, board compensation increased +2%, to $305K and $348K, respectively
• 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. Only 6% of the companies in our sample continue to have meeting fees. Almost half of these companies only pay meeting fees when the number of meetings exceed a certain threshold. 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. All three companies that do provide board meeting fees have non-standard ownership
• Equity. Consistent with prior years, providing full-value equity awards (shares/units) is the standard, with only two companies providing stock options (one of these companies grants both stock options and RSUs). Almost all companies denominated equity awards using a fixed value, not 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 other recent years
• Pay Mix. On average, total pay was comprised of 63% equity and 37% cash
• Form of Increase: 18% of companies disclosed increases to their annual cash or equity retainers:
  • 1% disclosed increases to only board cash retainer
  • 8% disclosed increases to only annual equity grant
  • 9% disclosed increases to both cash and equity retainers

Committee Member Compensation¹

• Overall Prevalence. 35% of companies paid committee-specific member fees for Audit Committee service, while only about a quarter of companies paid fees for service as a member 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 actively contribute to committees
• Total Fees. Of the companies that paid committee member compensation, the median for additional compensation remained flat for the Audit ($15K), Compensation ($15K) and Nominating/Governance ($12.5K) Committees

Committee Chair Compensation²

• Overall Prevalence. 95% of companies in the study provided additional compensation to committee Chairs to recognize additional time requirements, responsibilities and shareholder scrutiny of governance
• Fees. Similar to committee member compensation, median additional compensation for Chair service was flat year-over-year for each of the Audit ($30K), Compensation ($25K) and Nominating/Governance ($20K) Chair roles

Committee Meetings

• Audit Committees are meeting more than two times per quarter
• At median, Audit Committees met the most with 9 meetings, while Compensation Committees met 6 times and Nominating & Governance Committees meeting 5 times

Independent Board Leader Compensation

• Non-Exec Chair. Additional compensation was provided by 90% of companies with this role. Median additional compensation provided for service in this role was $200K, which was consistent with prior year. As a multiple of total Board Compensation, total Board Chair pay was 1.67x that of a standard Board member, at median
• Lead Director. Additional compensation was provided by 88% of companies with this role2. Median additional compensation was flat versus prior year, though we do anticipate increases in the future. At the 25th and 75th percentiles, additional pay provided for this role increased +3% and +5%, respectively. Median additional compensation provided for this role is approximately 67% greater than that provided for the Audit Committee Chair role. As a multiple of total Board Compensation, total Lead Director pay was 1.15x that provided to a standard Board member, at median. The difference in pay versus Board Chairs is in line with typical differences in responsibilities

Pay Limits

• 75 percent of companies have a shareholder approved limit in place for director compensation, consistent with prior year. Prevalence of limits that apply to both cash and equity-based compensation (i.e., total director pay) is slight majority practice
• 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 approximately $800K
• The limits are generally much higher than annual equity grants and/or total annual compensation. For example, roughly one-third of limits are equivalent to more than 5x the annual equity grants, which (as mentioned above) represents 63% of total annual board pay, on average

• Companies do not typically change, or review, director compensation limits on an annual basis. They typically review these limits about every three to five years when they look for shareholder approval for a new or amended equity incentive plan/reserve. Only two companies in our sample made changes to their limits over the past year:
  • Caterpillar increased their equity & cash limit to $1.0M (from $750K)
  • MetLife changed their limit to now cover both equity & cash, from equity only, and reduced the limit to $1.0M (from $2.0M)
• 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. 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

• 90% of companies in our sample have a minimum stock ownership guideline in place for outside board members, consistent with prior year. Among these companies, 87% use a “multiple of retainer” approach (e.g., 5.0x the annual cash retainer must be achieved within five years)
• Nearly 40% of companies have a holding requirement where (net-after tax) a portion or all of vested equity awards must be held until a director achieves the minimum stock ownership guideline
• It is minority practice to require for equity awards to be settled at or after termination of board service

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, help prompt questions, and 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 and more quickly “ramp” the ownership position of new board members
• Board Leadership Roles. Taking on the role of non-executive Chair, 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, to better align with the typical time requirements, responsibilities and reputational risk individuals in these roles take on
• Stock Ownership Requirements. Especially among the largest companies, it is common practice to require settlement of equity-based pay be deferred until a director leaves the board. We support alignment of director and shareholder interests through equity compensation, but allowing access to some equity-based compensation while an active director in combination with 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

Research Assistance: Zaina Jabri, Kasey Landon, and Abigail Bucklin provided support in preparing this CAPintel.

A question we get as board advisors is: do non-executive Board Chairs and Lead Directors typically serve on board committees, and if they do serve on a board committee, or committees, is it typically as a member or as the Chair of the Committee? We analyzed practices among the 100 largest U.S. public companies, by revenue, to address this and related questions, with a focus on the three standard board committees: Audit, Compensation and Nominating/Governance.

Do non-executive Board Chairs and/or Lead Directors serve on board committees?

Among our sample, a majority of both non-executive Board Chairs and Lead Directors serve on board committees. 69% of non-executive Board Chairs serve on at least one board committee, compared to 83% of Lead Directors. Most commonly, both roles serve on one or two of the standard board committees, and on average non-executive Board Chairs serve on 1.1 board committees compared to 1.4 committees for Lead Directors. In our experience, directors serving in either of these leadership roles at times will attend committee meetings even if they are not a formal/voting member of a given board committee.

Which board committees do non-executive Board Chairs and Lead Directors serve on?

Among the non-executive Board Chairs that serve on at least one committee, they most often serve on the Nominating/Governance Committee (59%), followed by the Compensation Committee (33%), with more limited prevalence of serving on the Audit Committee (13%).

At a high level, prevalence is directionally consistent for Lead Directors, Nominating/Governance Committee has the highest prevalence (57%), Compensation Committee has the second highest prevalence (48%), and Audit Committee has the lowest prevalence (32%) among Lead Directors that serve on at least one board committee. While directionally similar in terms of prevalence, Lead Directors are more than twice as likely (32%) to serve on an Audit Committee as a non-executive Board Chair (13%). This is likely driven by the independence standards that exist for Audit Committee members on public company boards.

When non-executive Board Chairs or Lead Directors serve on a board committee, how often do they Chair that board committee?

Among non-executive Board Chairs that serve on at least one committee, when they are on an Audit Committee they serve in the Chair role 20% of the time, when they are on a Compensation Committee they serve in the Chair role 31% of the time, and when they are on a Nominating/Governance Committee they serve in the Chair role 35% of the time.

In contrast, among Lead Directors that serve on at least one committee, none in our sample served as the Chair of the Audit Committee. Serving as the Chair of the Compensation Committee is also less common for Lead Directors compared to non-executive Chairs, with the Lead Directors in our sample serving in the Chair role only 17% of the time. The Nominating/Governance Committee has the inverse relationship, where Lead Directors serve as the Chair in the majority of instances (56%) which is significantly higher than their non-executive Chair counterparts.

Conclusion

This information has compensation-related implications. For example, a question that periodically comes up during director compensation reviews, is for instances where the Lead Director also serves as the Chair of the Nominating/Governance Committee, is if the Lead Director should receive additional compensation for both roles, or just for the Lead Director role? Answering such questions in a data-based manner, in terms of both pay data and other relevant market/prevalence data, is best practice. Detailed information on pay levels and trends can be found in CAP’s annual CAPintel on non-employee director compensation here:

https://www.capartners.com/cap-thinking/director-compensation-increases-are-back-among-the-largest-us-companies/

Each year CAP analyzes non-employee director compensation programs among the 100 largest companies. These companies can provide early insights into trends for compensation practices. This report reflects a summary of pay levels and pay practice trends based on 2020 proxy disclosure.

Key Takeaways

• Lowest year-over-year increase in total board compensation in the last 10 years
• Median retainer for Lead Director is now $45K, up from $35K in prior year

CAP Findings

Board Compensation

 pay levels remained generally flat again 

• Total Fees. Board compensation continues to be in a steady state with low single-digit annual increases. Median is now $310K, up from $305K last year. This is the lowest year-over-year increase during the 10 years that CAP has been conducting this study. Despite a significant increase in time requirements for board members during 2020 due to implications of the COVID-19 pandemic, we do not expect to see increases to annual director pay programs during 2020. That said, pay will be up during 2020 at the limited number of large companies that have retained meeting fees as an element of their non-employee director compensation program.
• COVID-19. 11 percent of companies announced pandemic-related temporary compensation reductions for directors, with most decreases only impacting cash compensation. In each of these cases, the company also announced a CEO salary reduction. 73 percent of these reductions were set to expire at the end of 2020, or sooner, while others did not specify a timeframe or stated “for the duration of the crisis.”
• 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. 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. While workload varies from year-to-year, this “advisory fee” approach takes a long-term view of director compensation and time requirements.
• Meeting Fees. Consistent with prior years, only 11 percent of companies studied provide meeting fees. Companies could consider having a mechanism for paying meeting fees if the number of meetings in a single year far exceeds the norm (“hybrid approach”). 5 percent of companies studied used this “hybrid” approach to meeting fees.
• Equity. 95 percent of companies used full-value awards (shares/units) and only 5 percent used stock options (3 of the 5 companies granting stock options used both equity award vehicles). Almost all companies denominated equity awards using a fixed value, versus a fixed number of shares. Using fixed value is generally considered best practice as it manages the “target” value awarded each year. The timing of director equity awards is typically linked to the annual meeting of stockholders. As a result of this and the standard fixed value approach to equity award determination, the number of shares directors received this year, at many companies, was significantly greater than prior years given typically short-term pandemic-driven stock price declines.
• Pay Mix. On average, total pay is comprised of 61% equity and 39% cash, which is consistent with findings over recent years.
• Process: 19 percent of companies disclosed increases to board cash and/or equity retainers in their 2020 proxy. This represents a significant decline from the one-third of companies that disclosed increases last year.

Committee Member1 Compensation

 prevalence continues to slowly decline 

• Overall Prevalence. 41 percent of companies paid committee-specific member fees for Audit Committee service, while only about a quarter of companies pay fees for other committee membership. 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 needs.
• Total Fees. Of the companies that paid committee member compensation, the median was $18K in total.

Committee Chair1 Compensation

 little/no change again 

• Overall Prevalence. More than 90 percent of companies provided additional compensation to Chairs to recognize additional time requirements, responsibilities, and reputational risk.
• Fees. Median additional compensation increased to $28K from $25K for Audit Committee Chairs and remained $20K for Compensation Committee and Nominating/Governance Committee Chairs.

Independent Board Leader Compensation

 pay levels continue to increase 

• Non-Exec Chair. Additional compensation is provided by nearly all companies with this role. Median additional compensation was $235K. As a multiple of Total Board Compensation, total Chair pay was 1.75x a standard Board member, at median.
• Lead Director. Median additional compensation was $45K, up significantly from $35K last year. 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.

Pay Limits

 prevalence continues to increase 

• 67 percent of companies have a shareholder approved limit in place for director compensation, up from 62 percent in the prior year.
• 54 percent of limits apply to just equity-based compensation, compared to 60 percent last year. We anticipate that the prevalence of limits that apply to both cash and equity-based compensation (i.e., total pay) will continue to increase.
• 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 range from $245K to $3.76M, with a median limit of $750K. The limited group of companies that denominate the limit in shares tend to have a higher dollar-equivalent limit, with a median of $1.18M.
• The limits are generally much higher than annual equity grants. Nearly one-third of limits are equivalent to more than 5x the annual equity grant.

Limit	Prevalence
<= 3X annual equity	40%
3.01X – 5X annual equity	27%
5.01X – 7X annual equity	19%
> 7X annual equity	13%

• Some companies exclude initial at-election equity awards, committee Chair pay, and/or additional pay for Board leadership roles from the limit.
• The higher limits above likely are intended to address the possibility of having to pay higher amounts to a non-executive Chair.

Some Changes CAP Suggests Companies Consider (Looking Ahead)

• 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. There has been a considerable “move to the middle” with director pay programs, and at-elections grants can be a way to differentiate your company’s pay program in the recruiting process without a broader, more costly, increase to standard director pay levels.
• Board Leadership Roles. Taking on the role of non-executive Chair, Lead Director or Chair of a major committee can come with considerable 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 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.

Appendix: Historical 3-Year Look