The COVID-19 pandemic justifiably receives most of the attention for disruption in the corporate environment since early 2020. But in many cases, it served as a spark, allowing other events of the past 18 months to ignite the flames underneath trends that were already happening: Digital transformation, vulnerability to climate change and cyberattacks, diversity and inclusion, social inequity and injustice, political instability, fair and equitable treatment of all employees, work-life balance, and human capital management—all of these issues weighed heavily on the collective minds of boards of directors in 2020 and 2021, yet none of them are new.
While director compensation numbers pale in comparison to the astronomical figures thrown around on highest-paid executive lists, board members receive solid paychecks for navigating this changing and challenging environment. Their value is centered on understanding the concerns and priorities of corporate stakeholders and ensuring that executives follow through on promises. In 2020, the median director retainer at Equilar 500 companies was $270,000, which increased steadily in each of the previous two years, up from $260,000 in 2018 and $265,000 in 2019 (Figure 1).
Among industry sectors, healthcare and communication services had the highest median retainer at $300,000, with technology not far behind at $298,000. The lowest median retainer of $245,000 was awarded to directors in the consumer cyclical industry. Meanwhile, basic materials companies provided the largest increase in their median retainers to board members from 2018 to 2020, increasing 12.5% from $240,000 to $270,000 (Figure 2).
Most companies offered some cash to their board members, with the median value of the cash component coming in at $100,000 annually, and the remainder coming in equity. Directors most commonly receive company shares in the form of stock or restricted stock units, with options being less frequently offered, and often at lower values (Figure 3).
Companies rarely award more than $500,000 for director retainers, and in fact, just seven different companies have done so over the past three years. Only two companies across the entire Equilar 500 offered more than $1 million as a retainer for their directors on an annual basis in any year, and only one company (Tesla) awarded more than $1 million in all three years of the study. Meanwhile, retainers below $100,000 are also quite rare, with just nine companies awarding less than this amount in 2020.
Gone are the days when board members were expected to be pawns in a grand chess match, rubber-stamping executive decisions to create wealth for an upper echelon of stockholders. With the push for independent directorships following Sarbanes-Oxley, the responsibility to align pay with performance following Dodd-Frank, and now the pressure to reconcile corporate activity with social responsibility in response to a rise in ESG concerns from a vast majority of corporate investors, the role of the corporate director has evolved considerably. Directorships may be part-time jobs, but they now require overtime commitments.