Despite Growing Responsibilities, Director Compensation Inches Forward

With a growing need to focus on emerging issues such as artificial intelligence and cyber risks that are proving both pervasive and influential in business and society, boards have been working overtime to add these concerns to their agendas—and the list only continues to grow. Nonetheless, median total direct compensation increased only 4 percent last year across all firms, the NACD 2023–2024 Director Compensation Report reveals. 

The 25th annual report, produced in collaboration with Pearl Meyer, analyzes information from 1,400 companies across 24 industries that filed a proxy statement or other US Securities and Exchange Commission documents detailing director compensation for the fiscal year ending between Feb. 1, 2022, and Jan. 31, 2023. Below are key insights from the report. 

Elements of Board Composition and Compensation

Board size remained dependent on organization size year over year. Overall composition changes were minimal, with the median board size across all firms remaining the same at 9 members. The median number of directors was unchanged at micro firms, with 8 directors; medium firms, with 9; and large firms, with 10. The median board size increased at small and top 200 organizations by one member; the median number of directors on top 200 boards was 12.  

Director term lengths are also dependent on organization size. Ninety-three percent of top 200 firms had annual terms, while micro and small companies offered a fairly even split of one-year terms (56 percent and 54 percent, respectively) and terms lasting more than one year. The median director tenure across all firms was 6.2 years, with small company directors having the shortest tenure at 5.7 years and medium companies the longest at 6.7 years. The median director age remained unchanged at 63 across all firm sizes, with little variation. Of note, 75 percent of top 200 firms disclosed having a mandatory director retirement age—a median of 75 years old—while only 26 percent of micro firms disclosed the same. 

As noted above, median total direct compensation increased by 4 percent across all firms, up from 2 percent in the prior study. Micro firms saw an increase of 7 percent, bringing median total direct compensation to $150,000, while small companies had no increase following a large bump from 2021 to 2022. Median total direct compensation at top 200 firms rose 3 percent to $322,611. 

Board compensation can be broken down into three components: cash retainers, board meeting fees, and total stock awards (split between stock options and full-value shares). Cash retainer growth remained relatively flat across all companies year over year. Board cash retainers were the second-largest component of total direct compensation, ranging from 33 percent to 37 percent.  

The value of total stock awards, however, increased by 7 percent in 2023. Following market best practices, equity compensation (consisting of full-value stock and stock options) comprised 58 percent of total direct compensation across all firms, a 1 percent increase over the prior year. Ninety-five percent of companies provided equity compensation to directors, with 92 percent offering full-value shares, making it the most popular equity vehicle. Additionally, 9 percent of all companies offered stock options.

The median value of board meeting fees decreased by 13 percent across size groups. This was likely a result of the declining number of meetings, among other factors. Small firms experienced the largest increase in board meeting fee value in 2023 at 17 percent, while micro and top 200 firms experienced no change. Board meeting fees made up 1 percent to 3 percent of median total direct compensation across all size groups and diminished in prevalence as company size increased. Only 10 percent of companies used board meeting fees, down from 14 percent in the prior study. 

Committee pay made up the remainder of total direct compensation, with committee pay ranging from 4 percent to 7 percent. As with board meeting fees, committee pay diminished as company size increased.  

Committee service compensation comprises meeting fees and annual retainers, though the prevalence of meeting fees declined from 23 percent in 2018 to 10 percent in 2023 across all firms. Most organizations tended to provide additional compensation for committee service, but committee chairs were most likely to receive such pay. For instance, audit committee chairs were offered some form of additional pay in 97 percent of companies studied, while audit committee members only saw committee pay in 62 percent of companies.  

Boards can use this report to benchmark and update their own pay practices to ensure they keep pace with the market. 

Heather Kierzek is the assistant editor of Directorship.