Some companies create the wrong impression about how much board members should get paid. Take Tesla, where board directors were in the news last month for, among other reasons, getting forced to return a sizable chunk of their compensation to the company.
Board members at the automaker were sued for overpaying themselves from 2017 to 2020, and offered to give back most of that pay to settle the lawsuit while admitting no wrongdoing. In total, they agreed to return a stunning $735 million in cash and stock.
Tesla is an outlier when it comes to board pay. In reality, most boards are concerned about the optics of enriching directors with lavish retainer fees, says Matthew Vnuk, a partner at consulting firm Compensation Advisory Partners (CAP), who coauthored a new report on 2022 pay trends for independent board members at the 100 largest U.S. public companies. One of the key takeaways from this year’s analysis, he says, is that the pressure for board pay to appear “reasonable” leads to tight compensation bands, with companies of the same size paying comparable amounts.
So what’s reasonable now? Independent board directors earned $325,000 last year as their average base pay, which represented a 2.5% increase from 2021.
The typical pay structure was also little changed from previous years: On average, directors earned 63% of their pay in equity and 37% in cash. In keeping with existing trends, most companies allowed board members to sell some stock even before their terms were over.
Much more work for a tiny bump in pay
To be sure, $325,000 is a generous fee for a part-time job. (Surveys find board members dedicate about 250 hours per year or more to their roles.) And yet some directors may wonder whether they’re making enough. The data shows there’s little financial incentive for board members to take a committee chair or lead independent director role, since those jobs demand “significantly” more hours, says Vnuk, but only pay a small amount more.
Here are the median amounts of how much extra compensation directors received according to their role:
Non-executive chair: $200,000
Lead independent director: $50,000
Audit committee chair: $30,000
Compensation committee chair: $25,000
Nominating and governance committee chair: $20,000
The consultants found that audit committee chairs saw at least a slight increase in their premiums—from an average of $28,000 in 2021 to $30,000 last year—but there was no year-over-year increase in the top-up pay for compensation committee or nominating and governance committee leaders.
Though time commitments for committee work can vary by industry and company, Vnuk says, nominating and governance committee chairs at most firms find themselves working longer hours these days, responding to pressures for companies to refresh or expand their boards and boost the diversity of voices and expertise in the room. As a result, they are now constantly searching for and recruiting fresh candidates. Their compensation, meanwhile, still reflects a period when boards were far more static.
No extremes
Such asymmetries likely won’t be corrected anytime soon, says Vnuk. Rather than giving committee chairs a meaningful raise, and risk landing on shareholders’ radar, he sees companies rotating leaders periodically to spread the extra work around.
Board chairs are also not clamoring for raises, he adds. Although they often remark on the added hours attached to their responsibilities, they’re more concerned with being paid market rates. “They do not want pay to be a distraction," says Vnuk.
Lila MacLellan
lila.maclellan@fortune.com
@lilamaclellan
