Compensation for outside corporate directors stabilizing, Willis Towers Watson study finds

ARLINGTON, Va., July 27, 2017 -- Total pay for outside directors at the nation’s largest corporations increased by a modest 2% in 2016, driven by increases in both cash and stock compensation, according to a new analysis by Willis Towers Watson (NASDAQ:WLTW), a leading global advisory, broking and solutions company. The study also found of all pay elements in a director’s total package, the annual cash retainer for board service experienced the largest increase, jumping 6% in 2016.   

Willis Towers Watson’s annual analysis of director compensation at Fortune 500 companies found median total direct compensation for directors climbed 2% last year, to $260,200, an increase from nearly $255,800 in 2015. Total direct compensation includes cash pay, and annual or recurring stock awards. According to the analysis, the median value of cash compensation increased 4% in 2016, to $105,000 while the median value of annual stock compensation rose 2% to $150,000. The average mix of pay remained relatively constant at 57% in equity and 43% in cash.

“Compensation for outside directors at U.S. public companies appears to have stabilized, at least for now,” said R.J. Bannister, North America leader of Executive Compensation consulting at Willis Towers Watson. While director pay increased modestly last year, the mix of pay between cash compensation and equity remained constant. In fact, only one-third of companies made any changes to the core elements of their pay programs with most of those taking a more balance approach to pay adjustments.

The growth in median annual cash compensation was driven primarily by the cash retainer for board service, which jumped 6% in 2016 to $95,000 at the median. Variable cash pay for board and committee meetings remained virtually unchanged from 2015. The median annual stock values increased 2% to $150,000. The vast majority of stock grants (92%) are based on a predetermined value versus 8% of grants that are based on a fixed number of shares. 

“Given the ongoing demands and pressures being placed on directors, attracting and retaining qualified candidates to serve remains a challenge for many companies. And despite overall director compensation stabilizing, we expect companies will continue to evaluate the role of fixed and variable pay as well as cash versus stock compensation in their director pay programs and make appropriate adjustments as needed,” said Bannister.

Among other analysis findings:

• Limits on director-specific awards. More than half (53%) of companies place a cap on annual stock grants for individual directors. Interestingly, over a quarter (26%) of companies with annual limits expanded the scope of the pay ceiling to include cash and/or total compensation. There has also been a sizable shift toward basing limits on a fixed dollar amount (73%) compared with 63% last year. 
• Board leadership pay. Nearly three-fourths (73%) of companies now have lead directors as an alternative to having a chairman serve as the highest-ranking independent board member. Lead directors received an additional $30,000 in compensation last year, up from $25,000 in 2015.
• Stock ownership and retention guidelines. Companies continue to embrace stock ownership guidelines and retention requirements for directors. Ninety-three percent of Fortune 500 companies now have one or both mandates in place, a slight increase from 92% in 2015. The vast majority of ownership guidelines (82%) are based on a multiple of the annual retainer.

About the analysis

Willis Towers Watson analyzed the compensation for outside directors at 300 publicly owned Fortune 500 companies that filed their fiscal year 2016 proxy statements by June 30, 2017. Data for these companies was then compared against an analysis of the same 300 companies for 2015.

About Willis Towers Watson

Willis Towers Watson (NASDAQ:WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 40,000 employees serving more than 140 countries. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas — the dynamic formula that drives business performance. Together, we unlock potential. Learn more at willistowerswatson.com. 

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