Average total compensation for non-employee directors of privately held companies increased 14% in 2024, according to a new survey from Compensation Advisory Partners (CAP) and Private Company Director and Family Business magazines. Annual cash retainers for directors increased 7%. The director pay increases reflect recent inflation, a tight labor market for specialized talent, and demand for director governance skills in areas including leadership, strategy, operations, finance, marketing and sales, and human resources.
The 2024 Private Company Board Compensation and Governance Survey is now in its fifth year. Private Company Director and Family Business magazines collect data from subscribers and CAP, a leading independent executive compensation consulting firm, conducts the data analysis and reporting. The database has grown to almost 2,000 respondents across a range of company sizes and industries. The 2024 edition focuses primarily on a robust dataset of 750 respondents who certified their data in May 2024. This ensures a comprehensive and current look at private company board pay levels and practices.
Another key finding beyond the increase in overall pay levels is that privately held companies use different director pay program designs than publicly traded companies. The design for director pay programs at publicly traded companies is homogeneous, with most companies offering a balanced mix of cash retainers and long-term incentives (LTIs). Differentiation in director pay may occur for board leadership roles, as well as committee leadership and participation. In contrast, privately held companies compensate non-employee directors using a variety of pay program designs, including cash retainer only, meeting fees only, a combination of retainers and meeting fees, and equity retainer only.
Survey participant overview
Survey respondents span a variety of sizes as measured by revenue and represent companies in diverse industries (see Exhibit 1). Manufacturing is the most prevalent industry in the survey (25% of respondents). Other industries represented include professional, scientific and technical services (14%); finance and insurance (8%); construction (7.5%); wholesale trade (5.5%); real estate, rental and leasing (5%); and retail trade (5%). The remaining respondents represent other industries.
Of the participating companies, 61% are wholly or majority family-owned or controlled. The survey also drew participation from companies that are closely held, private equity-backed and owned by employees through employee stock ownership plans (ESOPs). The business structures represented include S corporations, C corporations, limited liability companies (LLCs), partnerships and other structures (see Exhibit 2).
Of the respondents, 71% have fiduciary boards; the remainder have advisory boards. Compensation for advisory board members ranges from 60% to 75% of the compensation for directors on fiduciary boards. Advisory board service involves less risk and fewer legal obligations than fiduciary board service.
BOARD PAY MODELS
As shown in Table 1, private companies use varied pay models to compensate non-employee directors. The most common pay model, used by about half of the survey respondents, is to pay a cash retainer only. This approach is simple and mirrors the public company approach, but without equity. About one-quarter of companies provide directors with a mix of annual retainer and meeting fees, which encourages meeting attendance while recognizing work completed outside of meetings. About one-fifth of private companies pay meeting fees only, an approach used when most board work occurs in conjunction with meetings or when the number of meetings varies. About 5% of private companies provide an equity retainer only. This approach is common for private equity- and venture-backed companies that want to align directors with company success over the investment horizon and that want to conserve cash.
COMPENSATION IN TOTAL AND BY COMPONENT
Given the tight labor market and the recent inflationary environment, as well as increased workloads for directors, private company board pay levels increased in 2024. (See Table 2.) Annual retainers increased 7%, and the average total compensation per director rose by 14%, because of higher annual retainers and other pay components. Lead director prevalence and compensation increased significantly in 2024. This role is widely used by public companies when the CEO is also board chair or when the board chair is an employee. The increased pay for lead directors indicates that private companies value sound governance practices by using lead directors more and paying them a premium for their board leadership.
Annual Retainers
Annual cash retainers are part of most directors’ compensation packages. The median cash retainer for the entire sample is $32,000, which is up 7% from 2023. Board retainers are highly correlated with company size as shown in Exhibit 3.
Meeting Fees
Meeting fees continue to be used by private companies, while most publicly traded companies have migrated to retainers only. Of the private companies surveyed, 18% use meeting fees as their only form of cash compensation. As with retainers, meeting fees increase with company size (see Exhibit 4).
Long-Term Incentives
As in previous years, few private companies (only 28% of respondents) offer LTIs to board members., although the prevalence of LTI use ticked up from 2023. LTI use is a minority practice because private companies do not have stock that is easily liquid, and ownership is not widely held. This contrasts with public-company practice, where over 90% of companies grant equity to their directors. Of the private companies offering LTIs to directors, stock options and restricted stock/units are favored vehicles.
Typical practices for private company LTI awards are to grant annually (52%) or when the director is appointed to the board (39%) and to have awards subject to vesting. Given the varying time frames that awards cover, grant values vary significantly. The total sample median award value is $60,000, which is a combination of annual, ad hoc, periodic and one-time grants.
Other Key Compensation Findings
Compensation to family members. About half (51%) of the survey participants provide compensation to shareholders and family members who serve on the board, and typically compensate them on the same basis as independent directors. These companies believe in the importance of recognizing the contributions, skills and time of all directors, regardless of family or shareholder status. For other companies, the rationale for not paying family directors is because such directors already benefit from the company through ownership and shareholder distributions, and payment for board service is viewed as “double-dipping.”
Board leadership retainer. Approximately 40% of private companies provide additional compensation for board leadership roles. When incremental leadership retainers are considered as a multiple of regular board member retainers, the median multiple is 0.64x for the incremental board chair retainer, a level that has remained stable over time. The median multiple is 0.54x for the incremental lead director retainer, a significant increase from 2023, when the multiple was 0.4x. The increase in the retainer indicates that private companies are using lead directors more and paying them a premium for their board leadership and sound governance value.
Committee retainers. About 40% of private companies provide additional compensation for committee chairs, with an incremental retainer of $7,500 at median. Most companies do not differentiate pay between types of committees.
GOVERNANCE FINDINGS
Board size and composition. Typical private company board size ranges from five to eight directors, with a median of seven directors. The median increased by one director from the 2023 survey. Board composition for 2024 continues to be half inside directors and half independent/outside directors.
Board diversity. Two-thirds of survey respondents indicate that diversity is somewhat to extremely important for their board composition. Nearly three-quarters (73%) of respondents’ boards include women, while 29% include minority members. In contrast, publicly traded companies are often encouraged by institutional investors to have diverse boards. More than half of private equity- and venture-backed companies report that women and minorities are included on their company boards. In addition, larger private companies with more than $500 million in revenue are more likely to have greater board diversity relative to the entire sample.
BOARD EFFECTIVENESS
Privately held companies form boards to provide structure around accountability and sound governance. Directors bring specialized skills and expertise to the company, serve as sounding boards and advisors to owners and management, provide unique perspectives and ideas, and leverage their professional networks on behalf of the company. At times, directors also assist with transactions and special situations.
The survey asked respondents about board effectiveness. Respondents overwhelmingly reported that their boards are effective, with 86% rating them effective to extremely effective. The survey asked participants about ways to improve board effectiveness and the board’s biggest impacts on the company. Each question garnered two prevalent responses, as shown in Table 3.
TOTAL DIRECTOR COMPENSATION COST
To understand the total costs to private companies of having a board, the survey asked participants to calculate the average annual total compensation paid to one director and to all directors on the board (See Table 4). Total compensation includes the annual board cash retainer, meeting fees, LTIs, committee service pay and leadership premiums for non-employee directors.
Total board cost is correlated with company size. This relationship is driven by differences in the amount of compensation paid to individual directors, as well as differences in the size of the board. As a company’s revenue increases, the complexity of operations, regulatory requirements and the responsibilities of the board also increase. To deal with this greater responsibility, larger companies may have a larger board and separate committees. Higher compensation is needed to attract qualified talent and reward them for a more considerable time commitment.
LOOKING AHEAD
Previously, changes in board pay levels emerged slowly with flat or modest year-over-year growth. CAP expects to see the pace of change stabilize, with more modest but steady year-over-year increases. The talent market for directors is tight, with publicly traded and private companies competing for the same group of qualified candidates. For privately held companies in particular, finding board candidates who also have a cultural fit with the company is key.
CAP expects to see other changes emerge in the coming years, including:
• Increased emphasis on LTIs (either stock- or cash-based). They better align compensation with shareholder returns over a director’s tenure.
• Increased emphasis on annual board retainers in lieu of meeting fees and committee compensation. Bundling compensation for all board activities in the form of an annual cash retainer is a simpler way to compensate time and effort and easier to administer. For situations such as sales, mergers, acquisitions and unique projects, private companies will continue to use special arrangements to compensate for director time and effort.
The full survey results are limited to participants. Please contact David Shaw (dshaw@directorsandboards.com) if you are interested in participating in the survey in the future.