We tend to think of board rooms as places of stability and tradition—an image evoked by the wood paneling or windows with sumptuous views, the posh chairs and that highly polished rectangular table—but here, as elsewhere, yes, the times are a changing. It’s not precisely earthquake or tsunami level changes but if this is your first rodeo or you are joining a new board, you will probably want to pay attention to the details.
Experts are agreed that there are most definitely do’s and don’ts pertaining to any kind of negotiation and, in that sense, the compensation package of a board member is no different, even though, as some recent research suggests, some of the particulars may have changed, depending on the industry. Generally, experts advise that you look at the entire package, rather than just the straightforward compensation; it’s the balance of the elements that will matter most in the long term.
In an influential and widely cited research study published fifteen years ago, Michelle Marks and Crystal Harold identified five different types of negotiating strategies people used. They were:
- Collaborating—trying to reach a solution that all sides would be happy with
- Competing—trying to maximize the best possible solution for yourself
- Accommodating—putting the other party’s concerns first
- Compromising—striving to meet in the middle
- Avoiding—dodging negotiating in any real sense and accepting first offers
What was interesting is that regardless of how much leverage the person negotiating for him or herself brought to the table, the losers were clearly those who were inclined to avoid negotiation, as were those who took the accommodating or compromising routes. The most successful were those who negotiated in the competitive mode but, interestingly, those who combined competitive with accommodation were more likely to be satisfied with both the results and how the negotiation proceeded. It’s worth saying that if you are making a real commitment of time and effort to join a board and will need to work with the very people you have faced in a negotiation, this combined approach will probably best serve you.
A study commissioned by Grant Thornton in 2023 looked at director compensation levels at over 1,500 companies in the Russell 2000 Index and identified four key compensation trends that may signal changes in direction; these changes, considered both separately and together, may gave you a framework for how you consider not only your tactics in negotiating but your assessment of the overall package being offered to you.
Perhaps the most salient trend they found is “customizing the pay mix to reflect expected contributions.” Traditionally, board members have been compensated through an annual cash retainer, annual equity retainer (stock options or grants), and meeting and committee fees. While some companies continue the practice, many now tailor the compensation to your actual involvement; basically, it’s no longer a one-size-fits-all approach but reflects instead what the board expects you to bring to the party in terms of time, effort, and focus. They also note that while technology and health industries are more likely payin equity representing 60 to 70 percent of the total versus cash, other companies, such as those in the financial industry, tend to pay the majority of compensation in cash.
The second trend they found is boards offering “premiums for leadership positions.” Once again, the trend here to fit the compensation package to the time and effort being put in by an individual director which is another factor to keep in mind.
Third up is a trend toward “replacing meeting fees with committee retainers.” They note that while meeting fees used to be a standard part of a director’s compensation, only about 11 percent of the companies still did with the average fee being about $1500 per meeting, whether in person or virtual. Of that 11 percent of companies, 40 percent are in the financial sector so if that is where you are headed, be aware. Once again, the shift here emphasizes that you are being paid for what you do and that you are being rewarded for time and focus.
Finally, stock options continue to be a part of director compensation in 17 percent of companies, especially in the Healthcare industry, restricted stock units (RSUs) are the gold standard with more than 70 percent of the companies in the survey offering them. This is obviously an area in which you need to focus since the two are so very different. Needless to say, the conditions under which RSUs are offered matter a great deal and you may want to talk to your accountant or financial advisor about this aspect of the package.
Again, it’s the total package you are looking at and, yes, that package isn’t just about money but also your time, effort, focus, and commitment. Negotiate with that in mind.
