The Right Compensation Plan To Ignite A Business. The commission is paid every month, and it can continue to be paid even after you have a stock program in place. It closes the inherent gaps between departments by ensuring everyone is focused on revenue, profit and savings, versus individual department agendas.
See our latest compensation Forbes article here:
How Much Should You Pay Your Private Company Directors in 2019
In this article we examine recent data that highlights how much you should compensate your board members.
Private companies continue to struggle with the question “How much should we pay our directors?” There are many variables that determine director compensation: number of yearly meetings, industry, business size, business structure and more. The challenge private companies’ face is that there are few data points against which private companies can benchmark their Board compensation plans.
Lodestone Global recently published their 6th Annual 2016 Private Company Board Compensation Survey. The survey included 331 companies across 33 different industries and 39 countries to analyze current board practices and compensation around the world. All the respondents were members of the Young Presidents’ Organization (YPO), an international group of Presidents and CEOs. The organization unites approximately 24,000 business leaders in more than 130 countries. The 331 respondents were all CEOs of companies ranging from $10m to over $1bn in revenues.
2016 Compensation Survey Highlights
Of note, 50% of the survey respondents were family owned companies. The high participation rate of family majority owned respondents highlights the importance of professional corporate governance to family companies. The median number of board members was 6, with 3 independent directors. This has not changed over the six years the survey has been running. A significantly larger board leads to inefficiencies, while a smaller board risks limiting diversity of perspective so essential to driving effective strategy.
Interestingly, 85% of respondents say board compensation is not linked to performance, roughly in-line with 2015. Without the pressure of public scrutiny, private companies seem immune to this trend.
Historical Compensation Data
*Note: All figures in $USD unless indicated otherwise
*Data represents the median results. Total compensation assumes 4 in-person and 2 teleconference meetings.
Median Annual Retainer By Revenue
*Note: All figures in $USD unless indicated otherwise
Median Per Meeting Fees By Revenue
*Note: All figures in $USD unless indicated otherwise
One would expect total compensation to rise in line with company revenue size. For the past five years our data set has generally shown this trend. We believe the one outlier in the 2016 data, the $0-10m category, can be explained by a number of financial services companies that tended to pay directors more than peers (this happened in 2015 as well). Our sample included a higher percentage of P/E or V/C backed companies at 13% vs. 7% in 2015.
Historically, a statistically insignificant number of companies in the survey have used equity to compensate their board members. In 2016, however, the number of companies that used equity retainers more than doubled to 21% (meeting fees were still nearly all cash). We believe this is due to the increased number of PE/VC-backed companies mentioned above that pay their directors purely in equity or with cash and equity above market rates. These companies are investing in great governance early, to propel substantial growth. We continue to hold the thesis that mature private companies do not use equity as a key element of their board compensation programs.
If you have additional questions on Compensation or Governance issues – please comment below!
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Tune in to our next article that explores how to pick the perfect board member.
Lodestone Globalis a specialized consulting firm providing strategic guidance to chief executives of private and family controlled enterprises, who are considering forming or refreshing a board of directors. Lodestone Global also offers custom tailored board compensation analysis.
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