Corporate Board Compensation Adjusted for Crisis

May 26, 2020

Recent discussions on corporate director compensation can be helpful as fund boards consider their own pay over the next several months. In one corporate governance blog post, consultants from the Conference Board shared some key observations from corporate public disclosures made since March 1, 2020 on how corporations in the Russell 3000 are adjusting to the global health crisis in terms of director pay. Some of their findings:

Eleven percent of the Russell 3000 have announced executive base pay cuts in light of COVID-19.
Forty-three percent of the announcements were made by companies reporting annual revenue between $1 billion and $4.9 billion, and 25 percent by companies reporting annual revenue between $100 million and $999 million.
The majority (64 percent) of companies reducing executive base salaries are extending cuts to the cash retainers paid to their board’s non-employee directors. In most cases the percentage of the reduction applied to director cash retainers is the same disclosed for the company’s CEO, while 26 percent reported that director pay was reduced by a higher percentage than CEO pay. Of those companies that announced director pay reductions, 33 percent of directors forgo their full retainer and 20 percent cut it by half, while 7 percent of companies stated that they had not yet finalized the magnitude of the cut.

The Conference Board also recently issued the Director Compensation Practices in the Russell 3000 and S&P 500: 2020 Edition, which offers benchmarking data and analysis to inform the board pay design process. “Boards are being challenged to ensure that their pay program is ‘entirely fair’ and based on rigorous benchmarking and peer competitive analysis,” according to the authors. The report notes that the factors influencing corporate director compensation are shifting as: (1) The makeup of boards of directors is changing amid growing demand for gender diversity and broader skillsets; (2) the expansion of board committee responsibilities in response to the demand for more oversight of ESG-related risks; and (3) the additional scrutiny exercised by investors and courts of law over director compensation and the pay-setting process, following recent Delaware court decisions as well as positions taken by proxy advisors and large stockholders.