Trends in Director Stock Compensation and Ownership Guidelines - Banner

Trends in Director Stock Compensation and Ownership Guidelines

May 23, 2019

ISS Analytics recently released results of their analysis on U.S. non-executive director pay (“Update on U.S. Director Pay” – Kosmas Papadopoulos, ISS Analytics). Reminding us that the objective of director equity ownership is to align company and shareholder interests, ISS observes that companies appear to be on board with this concept, as a “significant portion of director compensation is paid in equity across all size segments of the U.S. market. Russell 3000 companies pay approximately 60 percent of total director compensation in equity. Larger companies are slightly more likely to pay directors in stock.”

When it comes to stock ownership guidelines, an interesting correlation emerges. ISS observes that larger companies have more robust stock ownership guidelines for their directors. In ranking director stock ownership guidelines as “Robust,” “Standard,” “Substandard,” or “Not Disclosed,” 80% of S&P 500 companies had guidelines identified as “robust” according to ISS. Only 21% of Russell 3000 companies received a “robust” label for their director stock ownership guidelines, but it’s also notable that 50% of those Russell 3000 companies did not disclose anything about stock ownership guidelines for directors – because perhaps (my opinion here) they don’t have any.

Our own NASPP/Deloitte data (NASPP/Deloitte 2017 Domestic Stock Plan Administration Survey) reports that 73% of companies (varied industries and company sizes) that reported having stock ownership guidelines apply them to non-employee directors. This is an encouraging number, but companies without any specific stock ownership policies or guidelines applicable to outside directors may want to use these trends as motivation to consider them.

Other notable trends in director pay include (based on 2019 meeting data):

  • Director pay across the board increased across all market segments
  • A correlation between non-employee director pay and CEO pay exists (ISS notes both figures are largely determined by company size)
  • Pharmaceutical and biotech companies offer the highest overall director pay packages

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    By Jennifer Namazi

    Content Director