Frederic W. Cook and Co’s 2014 Director Compensation Report was published in October of this year, and provides detailed information on non-employee director compensation across industries and firm size. The report highlights that there were only modest increases in director compensation and minimal changes in program structure in 2014.
Overview of the 2014 Director Compensation Report
Of note, compared to 2013, total director compensation in the 300-company universe studied in the report increased by 4% to 7%, with compensation at small-cap companies continuing to exhibit higher volatility. In terms of changes in director compensation program design, the trend is continuing to move towards streamlining through “(1) eliminating meeting fees and delivering the respective value through higher cash retainers implying that director attendance is a prerequisite of board service; (2) denominating equity grants as a dollar value rather than as a number of shares to mitigate year-over-year valuation changes, and (3) continuing the shift away from stock options to full-value shares to strengthen the alignment of directors’ and shareholders’ interests.”
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Details on the 2014 Director Compensation Report
Breaking down director compensation by size of firm, median total compensation increased at the fastest rate among small-cap companies, with large-cap companies not far behind.
The authors of the report, Eva Gencheva and Henry Paulin, point out that the relatively minor year-over-year changes in compensation among industry sectors are largely due to changes in the median size of the companies included in an industry sector
Details on total compensation mix
Further details on total compensation from the 2014 Director Compensation includes the fact that:
- All three company size segments on average provide a minimum of 50% of total compensation in equity
- Large-cap companies have simpler compensation structures composed of retainers for board service and committee leadership, as well as equity awards delivered in full-value shares
- Financial services companies pay the most total compensation in cash (more than 51% of total compensation), while technology companies pay the least (only 33% of total compensation).