What Direction Is Board Director Compensation Going?

Compensation to organizational board directors remains stable, according to two recent reports.

The 26th annual Director Compensation Report, produced by the National Association of Corporate Directors (NACD) and Pearl Meyer, found public company director compensation levels continued to grow modestly in 2024 — an average of $242,000 for all firms, which is 3% higher than the prior year. The report data pointed to overall compensation practices continuing to align with governance standards and shareholder expectations.

Data was collected from 1,400 organizations across 24 industries that had submitted a proxy statement to the Securities and Exchange Commission (SEC) or from any other filings containing director compensation information. The report assigned organizations to one of five size categories based on revenue: micro ($50 million to $500 million), small ($500 million to $1 billion), medium ($1 billion to $2.5 billion), large ($2.5 billion to $10 billion) and top 200 (200 largest companies in the S&P 500 based on revenue).

Meanwhile, median total board compensation (which includes cash and equity) was reportedly flat year-over-year at $325,000, according to a report by Compensation Advisory Partners (CAP). The report also found compensation provided for service in board and committee leadership roles was flat compared to the prior year.

CAP analyzed non-employee director compensation programs among the 100 largest U.S. public organizations. The report provides a summary of pay levels and pay practice trends based on the most recent 2024 proxy disclosures.

Both the NACD and CAP findings indicate current pay levels are competitive and effective in attracting and retaining board talent, as reflected in the flat to modest increases in director compensation, said Sue Holloway, a compensation content director at WorldatWork.

“However, more significant increases at smaller companies, privately held companies and those previously paying in the lower quartile suggest action is necessary to remain competitive in order to attract and retain qualified directors,” she said.

Standards and Practices

According to Holloway, director compensation structures at publicly traded companies remain fairly standardized, with most typically offering:

Annual board retainers composed of approximately 40% cash and 60% equity, with no separate meeting fees.
Full-value equity awards granted based on fixed-value rather than fixed-share amounts, with short vesting periods (immediate or one year).
Board retainers that do not include additional compensation for committee service, except for committee chairs, who receive retainers recognizing their added responsibilities, time commitments and heightened scrutiny.

“Director compensation approaches at privately held companies are much more varied than at publicly traded companies,” Holloway said. “The various pay models include an annual cash retainer only, per-meeting fees only, a combination of retainer and meeting fees, and an equity retainer only.”

Ani Huang, the CEO of the HR Policy Association’s Center on Executive Compensation, said the reports reveal director compensation for smaller organizations is growing faster than at larger organizations.

In a way, it’s because the smaller organizations are playing “catch up,” she said.

“Board directors across the globe are faced with increasing economic uncertainty, new technologies, a changing legal and regulatory landscape, and significant workforce challenges,” Huang explained. “While large companies may be under more scrutiny and potentially greater risks, the role of director has been elevated for all.”

Stability and Agility

According to Sarah King, NACD’s senior project manager, their report highlighted that stability is baked into director compensation programs, which do not have the same type of short- and long-term incentive programs found in executive compensation — and that can lead to variability in outcomes.

“This translates into modest year-over-year changes, suggesting certainty and not surprise,” she said. “For example, we saw no increase in median total direct compensation across the top 200 companies by revenue.”

Even with this stability, King noted there have been slight raises in committee chair and member pay across the board.

“This slight rise is consistent year over year as the complexity of the job increases,” she said, adding that the position of today’s director is more complex and requires deeper subject matter expertise in areas such as artificial intelligence and technology.

A ‘Meaningful Opportunity’

As the role of director becomes much more intricate, experts agree that boards must stay competitive as the roles and responsibilities of these entities and their committees have also expanded.

According to Kyle White, an associate at CAP, there is still a “meaningful opportunity” for increases in director compensation within leadership roles, such as a lead director or a committee chair, where the time required for those additional responsibilities is often not fully reflected in the current pay.

Additionally, boards can look outside the scope of compensation to attract and retain directors.

“We use money to incentivize, but working in an exceptional culture — with people who have mutual respect for each other and can amicably disagree — is also important in attracting the best directors,” King said.

To stay competitive, Holloway said organizations should:

Continuously monitor market trends to ensure director compensation levels are competitive and practices align with industry standards.
Set clear expectations regarding board member participation on committees.
Provide committee chairs with additional retainers to reflect their increased responsibilities, time commitments and exposure to heightened scrutiny.

Leading Practices for the Board

To ensure an organization’s board finds qualified directors, members should construct an appropriate peer group, benchmark pay and leverage the expertise of their compensation consultant, King said.

CAP partner Matt Vnuk said it’s important to provide the right pay packages for non-employee directors, and to adopt a board-approved and documented director compensation philosophy.

“This outlines the intended ‘market’ positioning for director pay, and it should provide clarity on how ‘market’ is defined for related benchmarking,” he said.

Holloway said compensation professionals should assess their organization’s current practices in comparison to industry norms.

“If they still maintain minority practices, such as paying meeting fees, they may want to evaluate and consider making adjustments to stay aligned with evolving best practices,” she said.

But the biggest move may be found in the small print, said Ryan Hourihan, a managing director at Pearl Meyer and lead author of the NACD report.

“If you look at a proxy disclosure and see how much real estate is given to director vs. executive compensation, it’s an afterthought,” he said.

Hourihan said organizations should use that space to be more thoughtful about how they disclose their director pay programs.

“There’s an opportunity there for companies to differentiate themselves and to lean in that disclosure to make it more robust,” he said. “Setting that stage will add real value for companies going forward.”

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