What to pay the boss's bosses
How much should you pay your company directors? First, take a hard look at what skills they'll need to guide your business.
Paul Dzera, MGBD, New York City
What would you recommend for determining board of directors' fee levels (annual retainer, board meeting fees, committee meeting fees, etc.), both in cash and stock options? I have a small public company with revenues of about $30 million. To date, I have reviewed the Director Compensation Report available through the National Association of Corporate Directors, but their "smaller" company information is for companies with revenues ranging from $50 million to $500 million.
By Emily Maltby, CNNMoney.com staff writer
Before you think about compensation, consider what skill sets you need represented in your board members.
"Twenty years ago, it was all the CEO's friends. So the qualifiers were, 'What's your golf handicap and how fast will you nod when I propose something?'" says Suzanne Hopgood, director of Board Advisory Services of the National Association of Corporate Directors (NACD). "This meltdown in particular has focused people on skill level. That will help define compensation. If you do rocket-science stuff, then you need highly educated, specialized people."
Also think about what you'll be expecting from your board. Startups that still require a lot of heavy lifting should pay their directors more than companies that are already chugging along at a steady pace.
One way to think about both skills and compensation is to imagine the board as a team of outside advisors, recommends Tom Juenemann, executive director of the Institute for Family Owned Business in Portland, Maine, which will be holding a conference in June on this topic.
"What would a good consultant cost you?" he says. "The answer will vary by industry and experience."
As you read this, board fees are in a state of flux. As the recession drags on, businesses are reducing the pay of senior executives and board members to keep costs down.
Taking this into account, Juenemann believes a good ballpark figure for a private business with about $30 million in revenues is $10,000 to $15,000 per board member, per year. Part of that should be paid as a base retainer, with the rest made up of attendance fees paid only when the board member turns up at board and committee meetings.
Another way to get sense of what you should be paying is to look at your competitors, suggests Hopgood. "Pick five public companies that are in your competitive range, go to public filings and see what they're paying," she says. "Then pick five that are in your revenue range, regardless of industry, and compare data points."
CEO salary is another commonly used benchmark. Juenemann says you can take your CEO's salary, divide it by the number of working days in the year, and come up with a reference point for a daily salary that you can pay your board chairman for each day that the board is working. Other board members typically command a salary about 80% of the chairman's.
Public companies like yours have other considerations: Do you want to pay part of your directors' compensation in stock or options? Fifty percent of public companies do so, Juenemann says; the rest pay only in cash.
As you figure all this into the equation, keep in mind that the economy right now has lots of supply and slow demand for seasoned business executives.
"Right now, people are looking to get board seats. Plus, there are more who are interested in smaller businesses than larger ones. The result is that you don't need to pay premium dollars," says Juenemann.
However, in this environment, it's imperative that you do extra vetting to ensure that your board members are skilled executives who are genuinely interested in helping your company succeed. You don't want a board member who is only in it for the salary.
If you need help finding candidates, try contacting NACD. They maintain a director registry that can help match qualified people with your needs.
Give us your advice: Check out recent “Ask & Answer” questions.
From Debra, Frisco, Texas I want to know why something has not been done by our government to step in and cap our CEO and executive compensation. It has been proven time and again that CEO's are raping our companies and in turn, our working people and our tax payers. The company I work at for example. Our CEO akes over 400 times more an hour than our highest paid employee. to put that number into a little more perspective, our average employee makes about $20.00 per hour. our CEO makes $8000.00 an hour. This makes no sence to e when we as employees feel that the executive boards are wanting to cut our benefits and healthcare, but they are not willing to take the same PERCENTAGE from themselves. Ask any of them to drop from $8000.00 per hour to $6400.00 an hour and you know where that will get you. That is exactly what a lot of companies are doing right now — hear them cry they have no money, but have open pocketbooks for anything they want. This is putting what they want into terms the public can understand. Outraged in Texas
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The last time the gov. capped ceo pay, the companies gave them alternate benifits instead of money that usually ended up costing more than the salary. The gov. should coin money, pave roads and provide for national defense, NOT CONTROL SUPPLY AND DEMAND IN A FREE MARKET, BE IT GOODS OR SERVICES.