By Barbara Spector
Most private companies pay their board directors an annual retainer, and the median annual retainer is $30,000, according to a new survey on private company board compensation.
Nearly three-quarters (72%) of the survey participants pay their directors an annual retainer, says Bertha Masuda, a partner with Compensation Advisory Partners (CAP). The firm, along with Family Business and Private Company Director magazines, conducted the 2019 Private Company Board Compensation and Governance Survey.
The survey — unveiled at the Private Company Governance Summit earlier this month — included online responses from more than 600 private companies with a broad range of revenues and ownership structures.
More than 50% report annual revenues over $100 million, and about a quarter generate annual sales in excess of $500 million. Thirty percent have revenues up to $50 million, and 15% report between $51 million and $100 million in sales. About 75% of the businesses are totally or majority family-owned. Six percent are private equity-owned. The vast majority of respondents are American companies.
While the median annual retainer for board service is $30,000, companies in the 90th percentile pay $90,000; and those in the 10th percentile pay $10,000.
Among the other findings of the survey:
- More than half of those who participated in the study (54%) pay a fee for each meeting a director attends in person. The median in-person meeting fee is $2,000 per meeting, while median pay for a telephone meeting is $1,000. One-quarter of the survey respondents pay for teleconferences.
- More than two-thirds of the companies have a board chair. One-third of these board chairs are independent; the rest are insiders. Nearly a quarter (22%) of the survey respondents have a lead director. Over a third of the respondents offer an additional retainer to board chairs or lead directors (37%) and to committee chairs or members (35%). The median retainer for the chairman of the board or lead director is $20,000.
- The median fee for committee chairs or members is between $5,000 and $6,000. Fees for service on the audit committee, which generally requires more work than the other committees, tends to be higher.
Some survey respondents — 12% — don’t compensate any of their board members. Unpaid boards tend to be made up of all insiders. They’re smaller, too, with only about four members, Masuda notes.
It’s typical for companies not to pay members of their management teams for board service, says Dennis Cagan, a veteran of many boards, because board duties are considered part of the job.
Masuda notes, however, that 45% of survey respondents who compensate for board service say they pay their inside directors. The rationale for paying them, she says, is to recognize the additional work involved in preparing for board meetings, particularly if the inside board member holds a position other than CEO.
The median board workload reported by survey respondents is about 55 hours, with a median four meetings per year. The median board committee workload is 20 hours per year, also involving four meetings.
David Shaw, editor and publishing director of Private Company Director and Directors & Boards magazines, says the median was likely brought down by respondents whose boards meet once a year and merely sign a document.
Higher revenues = higher retainers
Companies that generate higher annual revenues pay higher board retainers. That’s because they’re competing for talent against public company boards and adopting public company board best practices, Masuda says.
The median board retainer for private firms with revenues up to $10 million is $12,000. That number drops to $11,000 for businesses with revenues between $11 million and $25 million, and then increases to $15,000 for those with sales between $26 million and $50 million.
For companies generating revenues of $51 million to $100 million, the median board retainer jumps to $30,000 — also the overall median figure. The median dips to $25,000 for firms with sales from $101 million to $250 million.
Median board pay rises to $40,000 for private companies with sales between $251 million and $1 billion. Once revenues pass the $1 billion mark, the median increases to $65,000.
Companies paying higher board retainers tend not to offer additional per-meeting fees, Masuda says. And companies that pay more often require directors to purchase equity or take a portion of the retainer in equity.
About a tenth of the respondents offer phantom equity or other long-term incentives (11%) or actual equity share grants (9%) to directors.
“The compensation profile for these different companies can vary depending on what currency they have to pay directors and what the trends are in their particular industry,” says Cagan. “If it’s all cash compensation, that cash is going to be a little bit higher.
“In early-stage companies, where they don’t have necessarily a lot of cash, they may want to compensate board members with equity.”
“There were some interesting individual examples,” Masuda notes. Some companies’ directors participate in a fixed bonus pool for the year. Others split a percentage of the company’s net income among directors. Success fees are offered in some cases.
Some companies grant long-term incentives when a director is appointed to the board. Some provide incentive pay annually, while others offer it periodically. In some cases, the grants are performance-oriented, based on financial metrics.
Companies may defer directors’ compensation by putting it into a 401(k) or other retirement account, Cagan points out.
Board structure and compensation
Director pay also varies depending on the type of boards, fiduciary or advisory.
- Most of the companies participating in the survey (60%) have fiduciary boards. Slightly more than a quarter (26%) have advisory boards, 12% have both fiduciary and advisory boards and the rest describe their boards as “other.”
- The median retainer for fiduciary board service (about $30,000) is higher than the median for advisory board service (about $20,000). Companies with fiduciary boards generate median annual revenues of about $100 million, while those with advisory boards report median annual sales of about $60 million.
- The median board retainer in private equity-owned companies is higher than the overall median — about $50,000. While PE-owned companies don’t provide “bells and whistles” such as additional fees for meeting attendance or committee service, they do offer higher long-term incentive pay, Masuda notes.
- The median board size is seven members, about three of whom are independent. About one of these seven board members is a woman or a minority.