Willis Towers Watson’s annual analysis of director compensation at Fortune 500 companies found median total direct compensation for directors climbed 3% last year to $267,500, up from $259,750 in 2016. Total direct compensation includes cash pay, and annual or recurring stock awards. The median value of annual cash compensation increased 4% in 2017, to $107,500, bolstered by a 5% increase in the annual cash retainer to $100,000. Variable cash pay for board and committee meetings remained virtually unchanged. The median value of annual stock compensation rose 3% to just over $150,000. The average mix of pay remained constant at 57% in equity, 43% in cash.
“Compensation for outside corporate directors continued to grow at a modest but steady rate last year,” said Don Delves, North America leader, Executive Compensation, at Willis Towers Watson. “However, director pay continues to be a hot topic for boards in light of continued attention brought on by shareholder lawsuits over alleged excessive stock grants made to directors. As a result, boards are looking for ways, such as adding limits specific to directors, to mitigate exposure to lawsuits.”
Indeed, according to the analysis, the percentage of companies that implemented an annual compensation limit jumped from 55% in 2016 to 61% last year. Fixed value limits (78%) are more prevalent than those based on a fixed number of shares (22%) as they offer a more clearly defined pay ceiling. Furthermore, limits continue to go beyond covering only annual stock grants: 32% of annual limits now cover both stock and cash compensation, compared with 29% in 2016.
“Despite the overall stability of director pay we are seeing, it’s likely companies and their boards will continue to evaluate, and if necessary, refine their pay programs in the coming year. Companies remain under pressure to attract and retain qualified individuals to serve as outside directors. Having a competitive and fair pay program will be critical to achieving that goal,” said Delves.
Other findings from the analysis include:
- Board leadership. Almost half of companies (49%) separated the positions of board chair and chief executive officer in 2017, up from 47% in 2016. Conversely, the prevalence of companies identifying a lead or presiding director decreased from 73% to 70%. Lead directors received an additional $30,000 in compensation last year.
- Stock ownership and retention guidelines. Companies continue to embrace stock ownership guidelines and retention requirements for directors. Ninety-four percent of Fortune 500 companies now have one or both mandates in place. The vast majority of ownership guidelines (84%) are based on a multiple of the annual retainer, while just over half of retention requirements (55%) require a holding period that lasts until the stock ownership guidelines are met.
- Compensation review. Nearly half of companies (49%) review their director pay programs at least annually while three in 10 (29%) review their programs “periodically” or “from time to time.”
About the analysis
Willis Towers Watson analyzed the compensation for outside directors at 300 publicly owned Fortune 500 companies that filed their fiscal year 2017 proxy statements by June 30, 2018. Data for these companies was then compared against an analysis of the same 300 companies for 2016.
About Willis Towers Watson
Willis Towers Watson is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has over 40,000 employees serving more than 140 countries. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas — the dynamic formula that drives business performance. Together, we unlock potential.