Research from Pearl Meyer Shows Minor Uptick in Director Pay Amidst Increasing Public Scrutiny

Friday, April 22, 2016 - 13:48

Executive compensation consultancy Pearl Meyer has released key details from its annual director compensation survey, produced in conjunction with the National Association of Corporate Directors (NACD). The 2015-2016 NACD/Pearl Meyer Director Compensation Report is based on data from Pearl Meyer's annual analysis covering 1400 public companies with annual revenue ranging from $50M to over $10B, including the largest 200 firms in the S&P 500. Key findings include:

  • Small increases in year-over-year pay, with a 1-3 percent increase in total direct compensation (TDC) against the prior year, with only "Micro" category companies (revenue below $500M) as an outlier with a 9 percent rise; and
  • A continuing trend to simplify director pay by eliminating individual meeting fees.

"Director pay is currently a very hot topic in the boardroom and beyond," said Jannice Koors, managing director at Pearl Meyer and primary author of the study for more than 15 years. "Our research shows that changes in director pay have been quite modest and we expect that single-digit shifts will remain the norm over the next few years. However, in the public realm, we are seeing numerous cases coming under litigation and current media attention on board compensation is high."

During a recent public webcast on the study, produced for directors by the NACD and Pearl Meyer, attendees were polled on the question: Do you think shareholders should have the chance to opine on director compensation (i.e., "say-on-director-pay")?  Of the 178 responses, 40 percent said yes, 35 percent said no, and 24 percent had not considered the idea previously.

"While it's far from definitive, we believe this inclination toward overt director pay approval is reflective of an increased interest in transparency and accountability," said Koors.

A third key finding in the research study indicates continuing effort to align compensation with shareholders' interest through equity payments, ownership guidelines, and holding requirements.

"The NACD's long-standing advice to boards is to deliver at least 50 percent of total director pay in equity," said Peter Gleason, president, National Association of Corporate Directors. "We believe this practice helps align compensation with the interests of shareholders and our study with Pearl Meyer shows this is in fact the majority practice among major firms."

Data in the research show that almost 50 percent of micro companies ($50M to $500M in revenue) achieve the NACD's suggested threshold and the prevalence of the practice grows as company size grows. Fifty-eight percent of small companies ($500M to $1B), 74 percent of medium-sized companies ($1B to $2.5B), 75 percent of large companies ($2.5B to $10B), and 88 percent of the S&P Top 200 firms are in line with the recommended practice for equity-based pay.

"We see many boards putting increased focus on the long-term strategic goals of the organizations they serve and we encourage them to continue this approach by simplifying director pay and carefully aligning with shareholder interests," said Koors. "As with all elements of corporate governance, boards should be able to offer clear rationale for their decisions. Clearly communicating the value directors bring to the table can be an important factor in building a productive shareholder dialogue."

To Obtain the Report or For More Information on Custom Director Pay Studies

NACD members may download the report from the NACD website. Members may also purchase hard copies online from the NACD. For more information about custom director compensation studies contact Pearl Meyer atnacddirectorpay@pearlmeyer.com.

Additional Resources

  • Listen to a replay of the webcast "Director Compensation: A Hot-Button Issue in 2016?" or download the slides presenting detailed data and analysis from the study
  • Follow Pearl Meyer on LinkedIn and Twitter

About Pearl Meyer

Pearl Meyer is the leading advisor to Boards and senior management on the alignment of executive compensation with business and leadership strategy, making pay programs a powerful catalyst for value creation and competitive advantage. Pearl Meyer's global clients stand at the forefront of their industries and range from emerging high-growth, not-for-profit, and private companies to the Fortune 500 and FTSE 350. The firm has offices in New York, Atlanta, Boston, Charlotte, Chicago, Houston,London, Los Angeles, and San Francisco.

About NACD

The National Association of Corporate Directors (NACD), an independent nonprofit organization founded in 1977, is the country's only membership organization devoted exclusively to improving board performance. NACD conducts educational programs and standard-setting research, and provides information and guidance on a variety of board governance issues and practices. Membership comprises board members from U.S. and overseas companies ranging from large publicly held corporations to small, over-the-counter, closely held, and private firms. With chapters in many major cities providing educational programs and networking opportunities, NACD operates at both a national and local level.