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Update on Director Compensation - Executive Chairman
There is still very little data available on director compensations in small and medium sized companies. In the fall of 2006, I did a director compensation survey for angel financed companies in my area. The results correlated well with the small amount of other data I could find.
One of the interesting results of that survey was a bifurcation in director compensations. The graphic on that page illustrates the distribution of compensations from that survey. From the anecdotal survey data, and discussions with some of the survey respondents, it seemed some companies paying low compensations were doing so in part because they had not attempted to recruit new board members recently.
Over the past year and a half, it has been interesting to see some of those companies move up to market rates as they recruit new directors. Many more CEOs and directors have also been talking about how much smaller the pool of recruitable directors is.
Most of the companies I have discussed board compensation with are private, and their compensation information is not in the public domain. One public company that recently recruited new directors is MetroBridge.
This four year old tech company provides very high speed internet services using fixed broadband wireless. It went public with a CPC transaction in mid 2007. They recently recruited an executive chairman.
According to their publicly available information, the compensation for their executive chairman included a retainer of $150,000 per year. The meeting fee for the chairman was $2,250 per board meeting, which probably added another $20,000/yr depending on the number of meetings.
The total cash compensation was approximately $170,000 annually. In this case 150,000 options were also granted annually. My understanding is that this was for a nominal 40% time commitment.
In my conversations with other directors, this is now a typical executive chair compensation package for a company with an under $10 million valuation (or market cap).
These numbers are even higher than the chair compensations from the 2006 survey. This is probably due to a combination of:
- the increasingly popular “executive chairman” title and position,
- more companies trying to recruit directors and discovering how challenging it is, and
- further increases in director time commitments and liabilities.
This trend is reinforced in a recent report by Foley & Lardner that stated: "overall annual director fees have increased an average of 70 percent for small companies, 98 percent for mid-cap firms and 93 percent for S&P 500 companies between 2001 and 2006."
Based on this data and the discussions I've had, it seems likely that director compensations will continue to rise.
