Posted: July 14, 2020
When looking at proxy filings, it’s easy to interpret a company’s total annual board compensation as extravagant. The average compensation per board member can be quite high, easily reaching $300,000 to $500,000. To many outsiders these sums seem a bit inflated and possibly even disproportionate. In order to accurately conclude that board members are being paid too much, it’s important to understand the role of a board member in its entirety. Is board of directors compensation excessive? How can we measure fair compensation in corporate governance? What are board members doing to earn their salaries? Firstly it is important to understand that board of directors compensation includes a few different elements. The makeup of a compensation package includes annual retainers and per-meeting fees. Another significant element of compensation for board members is travel reimbursement. When a board member needs to travel in order to attend annual board meetings, they should be compensated for that expense. There are instances when a company will use the location of their board meetings as a sort of reward on top of reimbursement. An example of this is meeting at an exotic destination in order to conduct important business. For a publicly traded company, stock options often can also make up a significant part of a compensation package. With pay structure in mind, what are board members doing to deserve their pay? Although members of a board of directors aren’t involved in the daily operations of a company, their work is vital to maintaining a healthy business. They can be seen as overseers who have the shareholders’ interests in mind. Board members are responsible for steering the company in order to maintain profitability. This is referred to as “fiduciary responsibility” and encompasses the focus on efficiency and financial gain. Members of a board, while focused on the larger picture, ensure that the mission and vision of a company are being upheld. Officers and executives, as well as new board members, are all elected and overseen by board members. Board members are responsible for reviewing the actions of officers and executives in order to ensure that the aforementioned company vision is being adhered to. So, financial responsibility falls on the shoulders of members of the board of directors, but also does the duty of maintaining a company’s ethos. Board members bring value to companies, and should be compensated as such. Board members are highly qualified individuals with expertise in associated fields. The hiring of new board members relies on the current board; and new decisions are heavily scrutinized. At a quick glance it can seem that a board member is being paid heavily to attend a few meetings. But board meetings require not only expertise in a given field, but a great deal of preparation as well. The responsibilities, expertise required, and commitment to the profitability of the company are things that need to be considered when observing board of directors compensation. It’s clear that a lot falls on board members to create a healthy business structure. To learn more about maximizing executive salary, visit our Contact Page, or contact us directly by email at email@example.com or by phone at 415-618-6060.