How much do board directors get paid?
“How much do board directors get paid?” is a simple question with a complicated answer. The simple answer is that some board directors get paid and some don't. Regardless of whether, or how much, they get paid, board directors are bound by their fiduciary duty to do their best in planning and overseeing their organizations.
Board director responsibilities are only slightly more challenging than they've been over the last decade or so. It may seem that their responsibilities are heavier in recent years for a couple of reasons. Since the 2008 financial crisis, investors and regulators have been more strongly scrutinizing board performance on a board level and a director level. In learning more about what corporate board directors get paid and how they get paid in comparison with their median employees, financial experts and others who work in the industry are becoming increasingly concerned about the disparity between board and senior executive pay and pay for the rest of their employees.
You might be surprised at the answer to the question, 'How much do board directors get paid?' The consensus is that board director pay for corporate boards is high overall.
What Do Directors of Nonprofit Boards Get Paid?
The simple answer to what board directors of nonprofits get paid is usually nothing. According to the Internal Revenue Service (IRS), charities shouldn't pay their boards for their leadership services, except to reimburse them for reasonable, board-related expenses.
In determining which expenses are reasonable and reimbursable, the IRS suggests they use the rebuttable presumption test of section 4958 of the Internal Revenue Code and Treasury Regulation section 53.4958-6.
Nonprofit board directors usually perform their duties on a voluntary basis. Most serve their nonprofits while holding down full-time jobs and managing family life. Nonprofit board director service comes with the duty to place the nonprofit's mission ahead of one's personal interests. In addition, board directors provide oversight and visionary leadership, and uphold the nonprofit's mission with donors, volunteers, staff, policymakers and the nonprofit's clients.
Just like other volunteers, board directors may deduct their non-reimbursable expenses for nonprofit work, including mileage expense when they use their own car. For board directors who get paid more than $600 per year, the nonprofit must give them a 1099. Nonprofit board directors may lose their immunity when in lawsuits in some states when they serve on volunteer boards and receive some type of compensation.
What Do Corporate Board Directors Do to Earn Their Pay?
Within the last couple of decades, there's been a lot more concern and scrutiny over corporate board performance. In years past, many boards only met a few times per year. The company paid for their meals, transportation and lodging, and they received compensation in the form of cash, stocks and retainers. Corporate board directors usually got paid for attending meetings, serving on committees and serving as committee chairs.
Today, boards are expected to practice strong oversight and both short- and long-term strategic planning. Boards also deal with such issues as risk management, cybersecurity, increasing diversity and improving their own performance.
How Much Do Corporate Board Directors Get Paid?
The research firm MyLogIQ LLC gathered data from the company's 2017 proxy filings to form a list of director compensation at all S&P 500 companies.
To get a feel for the median company with paid board directors, USA Today took a closer look at some numbers for director compensation for Applied Materials, which was #250 on their list. At Applied Materials, the median cost of a board is approximately $2.83 million a year. Applied's board consists of nine independent board directors and one other board director. All board directors come up for election every year.
On average, board directors attended around 75% of board and committee meetings. They met five times during 2017. Applied Materials pays its board directors a retainer of $70,000 annually and a fee of $2,000 for each meeting they attend.
For the second quarter of 2017, Applied Materials gave its audit committee members an additional annual retainer of $25,000. They also gave their compensation and human resources committee members an extra $12,500, while the governance and nominating committee members got an additional $10,000. The director who serves as board chair got an additional payment of $150,000 and committee chairs got somewhere between $12,500 and $25,000 additionally by way of retainer fees. If that isn't enough, all the independent directors were given stock with a value of $222,643. The company also paid other fees and reimbursement for travel.
What Are the Top-Three Highest-Paid S&P 500 Boards?
The top-paid S&P 500 board in 2017 was Twenty-First Century Fox Inc. (NASDAQ: FOXA), with a total board compensation of $25.57 million. The average compensation per board member was $2.58 million in 2017.
The company that landed the #2 spot for the highest-paid board was Regeneron Pharmaceuticals Inc. (NASDAQ: REGN), with a total board compensation of $23.88 million. The average compensation package for board directors was $2.17 million.
The company that took the #3 spot for the highest-paid S&P 500 board was Incyte Corp. (NASDAQ: INCY), with a total board compensation of $7.92 million. Their board directors get compensated around $1.13 million per year.
See this link for information about board director salaries for the 25 top-paid S&P 500 boards in 2017.
The SEC's Rule on Pay-Ratio Disclosures
The Securities and Exchange Commission (SEC) has historically taken a recommendation-based regulatory approach to guiding companies with respect to best practices for good governance. Investors and activists have been outspoken about the large salaries that some companies pay their CEOs, boards and other senior executives in comparison with the salaries that they pay other employees in the company. In response to this activism, the SEC adopted a rule on pay-ratio disclosures whereby companies must disclose the CEO's compensation and the compensation of their median employee.
As an example of shareholder activism, Abigail Disney, who is the great-niece of founder Walt Disney, has been quite outspoken about the large salary of Disney's CEO, Robert Iger. Iger's salary was cut by millions of dollars after a vote of shareholders.
In today's world, companies need to be cognizant of what they're paying their executives in comparison with their employees and their competitors. An easy way to so this is by using Diligent Corporation's Nominations tool and CGlytic's compensation benchmarking software, which allows them to pull up more than 125,000 executive profiles by doing a simple search. It's the most efficient way to answer the question, 'How much do board directors get paid?' and gives boards a basis for making wise decisions about compensation.
