Board pay rises for middle market firms, while gender diversity remains low

28 November 2018 Authored by Consulting.us

According to an analysis by accounting and consulting firm BDO USA, average board member pay has risen by 4% at mid-market public companies. Meanwhile, female membership lags, with only 15% reporting a female board director.

The annual ‘BDO 600: Study of Board Compensation Practices of Mid-Market Public Companies’ examines the compensation practices of 600 publicly traded companies in the energy, financial services, healthcare, manufacturing, real estate, retail, and technology industries. For the purposes of the study, the accounting and consulting firm defines the middle market as being firms with between $100 million and $3 billion in annual revenues for non-financial services industries. Mid-market financial services firms, meanwhile, have assets between $100 million and $6 billion.

The study found that board director compensation in the middle market increased by 4% between 2016 and 2017, rising from an average of $159,416 in 2016 to $164,609 in 2017. Equity-based pay comprised over half of compensation packages (54%), with firms greatly favoring the use of stock awards over stock options.

Meanwhile, the average board size was nine members, with 81% as independent directors. The median total fee for board members was $1.2 million, with the banking industry paying the lowest median fee and healthcare firms paying the highest fee.

 

Compensation package makeup

The study also revealed that two-thirds of firms surveyed had director stock ownership guidelines – with the average ownership value guideline at $298,119. “Institutional investors have stepped up pressure on companies to adopt stock ownership guidelines in recent years following high-profile corporate scandals,” said Tom Ziemba, a managing director in the Compensation and Benefits practice at BDO. “These guidelines are now a core governance principle in analyst assessments.”

BDO’s report revealed that gender diversity at mid-market public firms remains low, with only 15% reporting that they have a female director. "Board composition centered on diversity in thought and experience is becoming increasingly more important to the health of organizations,” commented Amy Rojik, National Assurance Partner and director of BDO’s Center for Corporate Governance and Financial Reporting. “In the case of gender diversity, this is transcending well beyond voluntary best practices into legislated requirements in places like California.”

“Many directors believe their board has room to grow on diversity, with still far too few using formal composition reviews to address the topic, and those companies may soon be left behind," she added.

 

Industry breakdown

Board member compensation varied widely among the surveyed industries, with banking continuing to offer the lowest average fees by far ($44,564), while technology remained in the top spot with an average fee of $230,408. Banking and energy were the only industries to register decreased director pay from 2016 to 2017.

Retail board members saw the biggest bump in pay (9%), while manufacturing directors saw the second largest increase at 6%. Technology and healthcare directors were the only ones to receive an average compensation package of over $200,000.

“Industry trends are a critical benchmark for setting pay, especially among middle market companies,” Ziemba concluded. “But it’s important to look through a variety of lenses when determining pay to ensure you attract talented board members and can justify pay practices to analysts, investors and other stakeholders.”

Meanwhile, a study from Korn Ferry found that real wages have actually declined for entry-level professionals and clerical workers over the last decade, despite record low levels of unemployment.

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