Director Compensation Report

2020-2021 Director Compensation Report

03/18/2021

Compensation Committee Director Compensation Report

In brief: The compensation of nonemployee directors is a key component of governance in all corporations. A thoughtful compensation plan assists in aligning the interests of shareholders and directors, as well as providing value to directors for value received. The 2020–2021 Director Compensation Report, produced in collaboration with Pearl Meyer, provides a comprehensive perspective on director-pay practices across a wide range of industries and company sizes, including data from the largest 200 companies in the S&P 500.

Key Findings

  • Total Direct Compensation: Across firms of all sizes, the percentage of companies delivering more than 50 percent of their total director pay in equity continues to increase, with small companies ($500 million to $1 billion in revenue) and medium companies ($1 billion to $2.5 billion in revenue) experiencing the largest increases at 4 percent and 3 percent, respectively, over the past three years.
  • Equity Grant Practices: In 2020, the prevalence of fixed-value awards increased slightly across all size categories with the exception of micro organizations ($50 million to $500 million in revenue), which decreased in prevalence by 3 percent.
  • Board Composition: More than two-thirds of companies continue to implement one-year terms for directors, as companies feel more external pressure from investors and shareholder advisory groups to have directors on annual terms.

A related publication, the Director Compensation: Summary Statisticsis available from Pearl Meyer and provides additional data on director compensation by industry and company size. For further information or compensation consultation, please contact Pearl Meyer by emailing nacddirectorpay@pearlmeyer.com.

The focus on the board’s compensation committee has never been sharper. The components of compensation plans and the link between compensation and company performance are under intense scrutiny from shareholders, employees, policymakers, the media, and other stakeholders. The Report of the NACD Blue Ribbon Commission on the Compensation Committee revisits NACD’s 2003 Report of the NACD Blue Ribbon Commission on Executive Compensation to highlight the new environment in which compensation committees—and, more broadly, boards—are now operating. It recommends that the compensation committee and board work together to establish an executive compensation philosophy that supports the company in creating long-term, sustainable value.

The report includes ten specific recommendations for compensation committees to consider when evaluating their compensation philosophies. It also provides practical tools, such as sample compensation committee charters, a compensation committee assessment, and guidance on executive employment contracts.