Report Finds Modest Increases in Director Pay, Notes Implications of Tax Law

Compensation for directors continues its slow and steady upward creep, but not everything is expected to be business as usual over the next couple of years.

The 2017–2018 Director Compensation Report—the 19th annual report on board pay authored by the compensation consulting firm Pearl Meyer and published by the National Association of Corporate Directors (NACD)—finds small pay increases and notable changes in the operating environment that could have a trickle-down effect on director pay in the near future.

Growth Across All Company Sizes

The report’s authors analyzed director pay information found in proxy statements or other financial disclosures filed with the U.S. Securities and Exchange Commission for fiscal years ending between Feb. 1, 2016, and Jan. 31, 2017. In all, Pearl Meyer analyzed data from 1,400 companies across 24 industries.

Across all companies included in the analysis, median director pay increased a modest 4 percent over the prior reporting year. Looking at companies by market capitalization, the smallest increases went to directors of micro-sized companies (those with revenues ranging from $50 million to $500 million), where median pay grew just 2 percent, from $120,286 to $123,230 (see Figure 1).

Small and medium-sized companies tied for the largest year-over-year median pay increases at 6 percent. That brought director pay up to $166,278 at small companies (those with revenues between $500 million and $1 billion), and to $192,250 at medium- sized ones (those with revenues between $1 billion and $2.5 billion). The low- to mid-single-digit increases in median director pay have been fairly consistent over the past six years, according to the report.

Committee Service and Pay

Most companies continue to provide additional compensation to directors for their committee membership. As is consistent with previous years’ data, members of the audit committee—which has a median of seven meetings annually, the highest of any committee—garner more than members of any other committee, no matter the company size (see Figure 2).

Fees paid to audit committee members could increase in the next couple of years, according to the report. The committee’s already high workload could increase as companies navigate the financial ramifications of the new tax law.

The New Tax Law and a Changing Environment

The Tax Cuts and Jobs Act of 2017, introduced by congressional Republicans late last year and signed into law by President Donald J. Trump, is having wide-ranging effects on businesses. Board pay programs are likely to change as a result of the law, the report states.

This is particularly true when it comes to the practice of deferring director fees. Deferral of compensation that gets paid out in the form of director fees has, over time, become something of a signal of good governance. Delaying payouts is seen as helping align directors’ interests with the long-term interests of shareholders. The practice was meant to provide potential tax relief to directors who were, at the time of their board service, employed full time: by deferring their director pay until after retirement, they could presumably take advantage of lower post-retirement tax rates.

Enter the new tax law. Under the law, personal income taxes will decrease for upper-income levels. That means deferring director fees until later to enjoy lower tax rates on those fees may be less enticing.


For more information about the latest director compensation practices, read the full article about the compensation report in NACD Directorship magazine. The full 2017–2018 Director Compensation Report is available to NACD members at NACDonline.org/directorcomp. Information about joining NACD is available here. A supplemental publication, Director Compensation: Summary Statistics, provides additional compensation data and is available at PearlMeyer.com

Report Finds Modest Increases in Director Pay, Notes Implications of Tax Law

Compensation for directors continues its slow and steady upward creep, but not everything is expected to be business as usual over the next couple of years.

The 2017–2018 Director Compensation Report—the 19th annual report on board pay authored by the compensation consulting firm Pearl Meyer and published by the National Association of Corporate Directors (NACD)—finds small pay increases and notable changes in the operating environment that could have a trickle-down effect on director pay in the near future.

Growth Across All Company Sizes

The report’s authors analyzed director pay information found in proxy statements or other financial disclosures filed with the U.S. Securities and Exchange Commission for fiscal years ending between Feb. 1, 2016, and Jan. 31, 2017. In all, Pearl Meyer analyzed data from 1,400 companies across 24 industries.

Across all companies included in the analysis, median director pay increased a modest 4 percent over the prior reporting year. Looking at companies by market capitalization, the smallest increases went to directors of micro-sized companies (those with revenues ranging from $50 million to $500 million), where median pay grew just 2 percent, from $120,286 to $123,230 (see Figure 1).

Small and medium-sized companies tied for the largest year-over-year median pay increases at 6 percent. That brought director pay up to $166,278 at small companies (those with revenues between $500 million and $1 billion), and to $192,250 at medium- sized ones (those with revenues between $1 billion and $2.5 billion). The low- to mid-single-digit increases in median director pay have been fairly consistent over the past six years, according to the report.

Committee Service and Pay

Most companies continue to provide additional compensation to directors for their committee membership. As is consistent with previous years’ data, members of the audit committee—which has a median of seven meetings annually, the highest of any committee—garner more than members of any other committee, no matter the company size (see Figure 2).

Fees paid to audit committee members could increase in the next couple of years, according to the report. The committee’s already high workload could increase as companies navigate the financial ramifications of the new tax law.

The New Tax Law and a Changing Environment

The Tax Cuts and Jobs Act of 2017, introduced by congressional Republicans late last year and signed into law by President Donald J. Trump, is having wide-ranging effects on businesses. Board pay programs are likely to change as a result of the law, the report states.

This is particularly true when it comes to the practice of deferring director fees. Deferral of compensation that gets paid out in the form of director fees has, over time, become something of a signal of good governance. Delaying payouts is seen as helping align directors’ interests with the long-term interests of shareholders. The practice was meant to provide potential tax relief to directors who were, at the time of their board service, employed full time: by deferring their director pay until after retirement, they could presumably take advantage of lower post-retirement tax rates.

Enter the new tax law. Under the law, personal income taxes will decrease for upper-income levels. That means deferring director fees until later to enjoy lower tax rates on those fees may be less enticing.


For more information about the latest director compensation practices, read the full article about the compensation report in NACD Directorship magazine. The full 2017–2018 Director Compensation Report is available to NACD members at NACDonline.org/directorcomp. Information about joining NACD is available here. A supplemental publication, Director Compensation: Summary Statistics, provides additional compensation data and is available at PearlMeyer.com

Career Transition Participants Thrive With High-Touch Coaching

Career Partners International (CPI) is pleased to announce phenomenal outplacement participant satisfaction continues into 2018.  With a Net Promoter Score (NPS) of +78, CPI proves that a high touch approach to outplacement services yields the best results for participants and for clients.  NPS is a globally recognized, customer satisfaction benchmark that measures how likely a customer is to recommend the service to a friend.

As a global industry leader and trusted advisor for 30 years, Career Partners International maintains a people centered approach to career management along with a leading edge digital career portal. CPI provides comprehensive outplacement services in the strictest confidence with integrity, compassion, and respect for all individuals. These highly personalized programs ensure employees remain brand advocates, regardless of their career direction.

Much to my delight, there was incredible support offered by each member of the Career Partners International staff. I landed a wonderful job with a successful and growing company within three months!”   V. Geiman, Plant Manager

While other organizations offer an exclusively online delivery model, CPI still provides direct, individual participant support with an industry low coach to participant ratio of 30 to 1.  This unique approach allows coaches to focus on each participant’s needs.  With an industry leading average time to re-employment of 2.73 months, and 80% of participants landing at equal or greater compensation than their previous position, it’s no surprise that participants recommend CPI to others.

The post Career Transition Participants Thrive With High-Touch Coaching appeared first on CPIWorld.

AESC Executive Research Forum: Insights from New York

On June 19, 2018, we hosted the AESC Executive Research Forum in New York. The event included a series of dynamic content with topics touching upon the performance of the executive search profession and assessment of the role of the researcher, innovative ways to approach communication skills through improv, applicable measures in identifying and securing the best candidate, pertinent guidance on what you need to be aware of with new privacy regulations in place, next practices for sourcing and recruiting outside of the professional networking sites researchers have become so dependent on, and more.

Championing Diversity and Inclusion from the Top

Investors, legislators, and director peers around the world notice that diversity and inclusion practices are slow to be adopted. While adopting diversity from the highest level of the company appears as a challenge for some boards, it is one worth overcoming. Enter Anna Catalano, a respected director and champion of greater inclusion of people of diverse backgrounds and perspectives in American boards and on boards around the world.

Catalano, an active corporate director with more than 30 years of experience, is a director of Willis Towers Watson, Kraton Corp., and HollyFrontier Corp., and advises still more companies. She is an NACD Board Leadership Fellow and board member of the NACD Texas Tri-Cities Chapter. In her work in the nonprofit sector, she is a director of the Alzheimer’s Association, the Houston Grand Opera, and is an honorary co-founder of the Kellogg Innovation Network at Northwestern University.

Catalano’s global business leadership experience is deep: she has held executive positions in Asia, Europe, and North America. She also is a proud champion of women in business and understands the role of diversity and inclusion in companies’ ability to innovate.

NACD caught up with Anna Catalano to speak with her about diversity in the boardroom prior to NACD’s 2018 Global Board Leaders’ Summit.

NACD: Having held executive positions in Asia, Europe, and North America, how has working internationally influenced you?

Catalano: Living abroad really changes your perspective on the world. If you have the opportunity to work and live internationally, you should do it. An international perspective is crucial for members of boards at companies that are global or are considering expanding into global markets. It’s important that companies recognize that not all countries develop in the same ways. If you have experiences working and living in different countries, it can help you understand how countries develop and what different populations are interested in within that market. One thing that has been reinforced for me in my global experience is that in spite of cultural differences across the globe, we all care about our families and our communities. I believe that perspective is needed on boards, and sadly it’s really missing in many.

NACD: You’ve been recognized in Fortune’s ranking of “The Most Powerful Women in International Business” and shared your thoughts on International Women’s Day on your blog. What advice do you have for female board members working to expand their international board portfolio? How can women break into the boardroom?

Catalano: It is crucial to get more women to serve on boards of all types and in all industries. If a woman is not on a board and is looking to join, I would advise her first to continue growing her experiences and seek out learning opportunities. My advice to people who want to get on their first board is to make sure you have a good story to tell about why you’re qualified and what makes you a desirable candidate. It’s imperative to be distinctive and able to add value to the strategic conversation. Second, you have to figure out how to become top-of-mind. You want to be the first person a recruiter or another director thinks of when a position opens up. How do you do that? Form relationships. The first time you call a recruiter should not be about how you’re going to get onto a board. If you wait until you are 55 years old before you develop a relationship with a recruiter, it’s probably too late. Start early and build relationships over time. Most importantly, women who already sit on boards need to help other women.

NACD: Implicit bias and the idea of the bias of crowds hardwires a lack of inclusion into organizations. What steps can a board take to get serious when it comes to diversity and inclusion in 2018?

Catalano: Directors on a board need to understand deeply what diversity and inclusion are. It is not about numbers or getting a certain percentage of women or people of color in certain positions. The concept of understanding bias around diversity and inclusion requires delving into why you make certain choices and assumptions about people. My take is that in the majority of instances it’s not intentional or malicious that women are primarily in functional roles and that men are primarily in profit and loss roles. Boards need to examine and understand why these trends happen, and that be willing to invest time into the process. If you ask most board members if they understand diversity and inclusion at their company, they will say they do but then they cannot really explain it. It is crucial to invest in learning about and understanding diversity and inclusion and having a board chair willing to spend some quality time on this topic.

 

Don’t miss out on the continuation of this discussion at the 2018 Global Board Leaders’ Summit, happening September 29 through October 2 in Washington, DC. There will be plenty of opportunities at Summit to discuss the future of the economy, globalization, and much more. Register by June 30 to take advantage of the early bird rate and save $1,000 off the registration price.

Championing Diversity and Inclusion from the Top

Anna Catalano

Investors, legislators, and director peers around the world notice that diversity and inclusion practices are slow to be adopted. While adopting diversity from the highest level of the company appears as a challenge for some boards, it is one worth overcoming. Enter Anna Catalano, a respected director and champion of greater inclusion of people of diverse backgrounds and perspectives in American boards and on boards around the world.

Catalano, an active corporate director with more than 30 years of experience, is a director of Willis Towers Watson, Kraton Corp., and HollyFrontier Corp., and advises still more companies. She is an NACD Board Leadership Fellow and board member of the NACD Texas Tri-Cities Chapter. In her work in the nonprofit sector, she is a director of the Alzheimer’s Association, the Houston Grand Opera, and is an honorary co-founder of the Kellogg Innovation Network at Northwestern University.

Catalano’s global business leadership experience is deep: she has held executive positions in Asia, Europe, and North America. She also is a proud champion of women in business and understands the role of diversity and inclusion in companies’ ability to innovate.

NACD caught up with Anna Catalano to speak with her about diversity in the boardroom prior to NACD’s 2018 Global Board Leaders’ Summit.

NACD: Having held executive positions in Asia, Europe, and North America, how has working internationally influenced you?

Catalano: Living abroad really changes your perspective on the world. If you have the opportunity to work and live internationally, you should do it. An international perspective is crucial for members of boards at companies that are global or are considering expanding into global markets. It’s important that companies recognize that not all countries develop in the same ways. If you have experiences working and living in different countries, it can help you understand how countries develop and what different populations are interested in within that market. One thing that has been reinforced for me in my global experience is that in spite of cultural differences across the globe, we all care about our families and our communities. I believe that perspective is needed on boards, and sadly it’s really missing in many.

NACD: You’ve been recognized in Fortune’s ranking of “The Most Powerful Women in International Business” and shared your thoughts on International Women’s Day on your blog. What advice do you have for female board members working to expand their international board portfolio? How can women break into the boardroom?

Catalano: It is crucial to get more women to serve on boards of all types and in all industries. If a woman is not on a board and is looking to join, I would advise her first to continue growing her experiences and seek out learning opportunities. My advice to people who want to get on their first board is to make sure you have a good story to tell about why you’re qualified and what makes you a desirable candidate. It’s imperative to be distinctive and able to add value to the strategic conversation. Second, you have to figure out how to become top-of-mind. You want to be the first person a recruiter or another director thinks of when a position opens up. How do you do that? Form relationships. The first time you call a recruiter should not be about how you’re going to get onto a board. If you wait until you are 55 years old before you develop a relationship with a recruiter, it’s probably too late. Start early and build relationships over time. Most importantly, women who already sit on boards need to help other women.

NACD: Implicit bias and the idea of the bias of crowds hardwires a lack of inclusion into organizations. What steps can a board take to get serious when it comes to diversity and inclusion in 2018?

Catalano: Directors on a board need to understand deeply what diversity and inclusion are. It is not about numbers or getting a certain percentage of women or people of color in certain positions. The concept of understanding bias around diversity and inclusion requires delving into why you make certain choices and assumptions about people. My take is that in the majority of instances it’s not intentional or malicious that women are primarily in functional roles and that men are primarily in profit and loss roles. Boards need to examine and understand why these trends happen, and that be willing to invest time into the process. If you ask most board members if they understand diversity and inclusion at their company, they will say they do but then they cannot really explain it. It is crucial to invest in learning about and understanding diversity and inclusion and having a board chair willing to spend some quality time on this topic.

 

Don’t miss out on the continuation of this discussion at the 2018 Global Board Leaders’ Summit, happening September 29 through October 2 in Washington, DC. There will be plenty of opportunities at Summit to discuss the future of the economy, globalization, and much more. Register by June 30 to take advantage of the early bird rate and save $1,000 off the registration price.

Getting the Right Cybersecurity Metrics and Reports for Your Board

In the 2017–2018 NACD Public Company Governance Survey, 22 percent of corporate directors said they were either dissatisfied or very dissatisfied with the quality of cybersecurity information provided by management.

We’re not surprised. In most cases, management still reports on cybersecurity with imprecise scorecards like red-yellow-green “heat maps,” security “maturity ratings,” and highly technical data that are out of step with the metric-based reporting that is common for other enterprise reporting disciplines.

Boards deserve better. We recognize that cybersecurity is a relatively young discipline, compared to others under the umbrella of enterprise risk management (ERM). But it’s not a special snowflake. Management can and should deliver reports that are:

  • Transparent about performance, with economically-focused results based on easily understood methods.
  • Benchmarked, so directors can see metrics in context to peer companies or the industry.
  • Decision-oriented, so the board can provide oversight of management’s decisions, including resource allocation, security controls, and cyber insurance.

While that level of reporting may still be aspirational for some companies, directors can drive their organizations forward by asking the following five questions, and demanding answers backed by the sorts of metrics and reports that we suggest below.

Before we get to the questions, there’s an over-arching prerequisite for sensible reporting: Every key performance and risk indicator should be tracked against a target performance or risk appetite, respectively.

That means defining risk tolerances in an objective, clear, and measurable way—for instance, “our critical systems downtime should always be less than one percent”—so that an analyst’s gut feelings aren’t determining results.

1. What is the threat environment that we face?

The chief information security officer or chief risk officer should paint a picture of the threat environment (cybercriminals, nation-states, malicious insiders, etc.) that describes what’s going on globally, in our industry, and within the organization. Examples of good metrics and reports include:

  • Global cyber-related financial and data losses
  • New cyber breaches and lessons learned
  • Trends in ransomware, zero-day attacks, and new attack patterns
  • Cyber threat trends from ISACs (information sharing and analysis centers)

2. What is our cyber-risk profile as defined from the outside looking in?

Boards should get cyber-risk assessments from independent sources. Useful sources of information include:

  • Independent security ratings of the company, benchmarked against peers
  • Third-party and fourth-party risk indicators
  • Independent security assessments (e.g., external consultants and auditors)

3. What is our cyber-risk profile as defined by internal leadership?

Management should provide assessments with tangible performance and risk metrics on the company’s cybersecurity program, which may include:

  • NIST-based program maturity assessment
  • Compliance metrics on basic cyber hygiene (the five Ps): passwords, privileged access, patching, phishing, and penetration testing
  • Percentage of critical systems downtime and time to recover
  • Mean time to detect and remediate cyber breaches

4. What is our cyber-risk exposure in economic terms? Based on the company’s cyber-risk profile, the central question is: What is the company’s potential loss?

In the past 30 years, we have seen that question answered in economic terms in each and every risk discipline in ERM: interest rate risk, market risk, credit risk, operational risk, and strategic risk. Now we need to address that question for cyber risk. This expectation can also be found in the U.S. Securities and Exchange Commission’s new guidance on cybersecurity disclosures and its focus on quantitative risk factors.

The Factor Analysis of Information Risk (FAIR) methodology is a widely-accepted standard for quantifying cyber value-at-risk. The FAIR model provides an analytical approach to quantify cyber-risk exposure and meet the heightened expectations of key stakeholders.

In the current environment, directors should demand more robust reporting on metrics such as:

  • Value of enterprise digital assets, especially the company’s crown jewels
  • Probability of occurrence and potential loss magnitude
  • Potential reputational damage and impact on shareholder value
  • Costs of developing and maintaining the cybersecurity program
  • Costs of compliance with regulatory requirements (e.g., the EU’s General Data Protection Regulation)

5. Are we making the right business and operational decisions?

Cyber is not simply a technology, security, or even risk issue. Rather, it is a business issue and a “cost of doing business” in the digital economy. On the opportunity side, advanced technologies and digital innovations can help companies offer new products and services, delight their customers, and streamline or disrupt the supply chain. As a top strategic issue, management should provide the board with risk and return metrics that can support effective oversight of business and operational decisions, such as:

  • Risk-adjusted profitability of digital businesses and strategies
  • Return on investment of cybersecurity controls
  • Cyber insurance versus self-insured

We believe the number should be zero when it comes to the percentage of directors dissatisfied with the cybersecurity information provided by management. Based on our own observations of board reports on the quality of cybersecurity reporting, there remains significant gaps. We hope our article will serve as a framework for directors and executives to discuss ways to close those gaps.

Getting the Right Cybersecurity Metrics and Reports for Your Board

In the 2017–2018 NACD Public Company Governance Survey, 22 percent of corporate directors said they were either dissatisfied or very dissatisfied with the quality of cybersecurity information provided by management.

We’re not surprised. In most cases, management still reports on cybersecurity with imprecise scorecards like red-yellow-green “heat maps,” security “maturity ratings,” and highly technical data that are out of step with the metric-based reporting that is common for other enterprise reporting disciplines.

Boards deserve better. We recognize that cybersecurity is a relatively young discipline, compared to others under the umbrella of enterprise risk management (ERM). But it’s not a special snowflake. Management can and should deliver reports that are:

  • Transparent about performance, with economically-focused results based on easily understood methods.
  • Benchmarked, so directors can see metrics in context to peer companies or the industry.
  • Decision-oriented, so the board can provide oversight of management’s decisions, including resource allocation, security controls, and cyber insurance.

While that level of reporting may still be aspirational for some companies, directors can drive their organizations forward by asking the following five questions, and demanding answers backed by the sorts of metrics and reports that we suggest below.

Before we get to the questions, there’s an over-arching prerequisite for sensible reporting: Every key performance and risk indicator should be tracked against a target performance or risk appetite, respectively.

That means defining risk tolerances in an objective, clear, and measurable way—for instance, “our critical systems downtime should always be less than one percent”—so that an analyst’s gut feelings aren’t determining results.

1. What is the threat environment that we face?

The chief information security officer or chief risk officer should paint a picture of the threat environment (cybercriminals, nation-states, malicious insiders, etc.) that describes what’s going on globally, in our industry, and within the organization. Examples of good metrics and reports include:

  • Global cyber-related financial and data losses
  • New cyber breaches and lessons learned
  • Trends in ransomware, zero-day attacks, and new attack patterns
  • Cyber threat trends from ISACs (information sharing and analysis centers)

2. What is our cyber-risk profile as defined from the outside looking in?

Boards should get cyber-risk assessments from independent sources. Useful sources of information include:

  • Independent security ratings of the company, benchmarked against peers
  • Third-party and fourth-party risk indicators
  • Independent security assessments (e.g., external consultants and auditors)

3. What is our cyber-risk profile as defined by internal leadership?

Management should provide assessments with tangible performance and risk metrics on the company’s cybersecurity program, which may include:

  • NIST-based program maturity assessment
  • Compliance metrics on basic cyber hygiene (the five Ps): passwords, privileged access, patching, phishing, and penetration testing
  • Percentage of critical systems downtime and time to recover
  • Mean time to detect and remediate cyber breaches

4. What is our cyber-risk exposure in economic terms? Based on the company’s cyber-risk profile, the central question is: What is the company’s potential loss?

In the past 30 years, we have seen that question answered in economic terms in each and every risk discipline in ERM: interest rate risk, market risk, credit risk, operational risk, and strategic risk. Now we need to address that question for cyber risk. This expectation can also be found in the U.S. Securities and Exchange Commission’s new guidance on cybersecurity disclosures and its focus on quantitative risk factors.

The Factor Analysis of Information Risk (FAIR) methodology is a widely-accepted standard for quantifying cyber value-at-risk. The FAIR model provides an analytical approach to quantify cyber-risk exposure and meet the heightened expectations of key stakeholders.

In the current environment, directors should demand more robust reporting on metrics such as:

  • Value of enterprise digital assets, especially the company’s crown jewels
  • Probability of occurrence and potential loss magnitude
  • Potential reputational damage and impact on shareholder value
  • Costs of developing and maintaining the cybersecurity program
  • Costs of compliance with regulatory requirements (e.g., the EU’s General Data Protection Regulation)

5. Are we making the right business and operational decisions?

Cyber is not simply a technology, security, or even risk issue. Rather, it is a business issue and a “cost of doing business” in the digital economy. On the opportunity side, advanced technologies and digital innovations can help companies offer new products and services, delight their customers, and streamline or disrupt the supply chain. As a top strategic issue, management should provide the board with risk and return metrics that can support effective oversight of business and operational decisions, such as:

  • Risk-adjusted profitability of digital businesses and strategies
  • Return on investment of cybersecurity controls
  • Cyber insurance versus self-insured

We believe the number should be zero when it comes to the percentage of directors dissatisfied with the cybersecurity information provided by management. Based on our own observations of board reports on the quality of cybersecurity reporting, there remains significant gaps. We hope our article will serve as a framework for directors and executives to discuss ways to close those gaps.