CHICAGO--(BUSINESS WIRE)--Director compensation among middle market public companies is up 12 percent in fiscal year 2013, a significant jump from the 3 percent increase in the previous year. According to an analysis of 600 companies conducted by BDO USA, LLP, a leading accounting and consulting organization, average director compensation across eight industry verticals grew to $139,048 in fiscal year 2013, an increase from $124,615 in fiscal year 2012. This reflects a three-year high, with fiscal year 2011 average director compensation at $120,886 (a 10 percent increase from fiscal year 2010 ), indicating that improving economic conditions are enabling compensation to catch up to the increase in job responsibility, complexity and overall demands.
Full-value stock awards continue to make up the large majority of compensation across all surveyed middle market companies, comprising 45 percent of the overall pay mix and amounting to an average of $62,904. This is a slight increase from 43 percent in fiscal year 2012. Board retainers and fees are largely unchanged from the last fiscal year, holding at an average of $53,774 (39 percent of pay mix). Committee retainers and fees at 6 percent (-1 percent from last fiscal year) and stock options at 10 percent continue to comprise the same portion of the overall pay mix. The trend of favoring full-value stock awards as a way to provide long-term economic value without diluting company stock continues to be the prevailing strategy in developing director compensation packages.
“Directors have long been contending with rising responsibilities and job demands in a highly complex and regulated business environment, and, yet, last year, in the midst of this, compensation seemed to be leveling off,” said Randy Ramirez, a senior director in the Global Employer Services Practice at BDO. "However, improving economic conditions and competition for qualified directors have allowed for a notable increase in compensation."
These findings are from the most recent edition of The BDO 600: 2014 Survey of Board Compensation Practices of 600 Mid-Market Public Companies, which examines director compensation trends in publicly-traded companies with annual revenues ranging from $25 million to $1 billion in the energy, healthcare, manufacturing, real estate, retail and technology industries; and publicly-traded companies with assets ranging from $50 million to $2 billion in the banking and financial services industries. The study includes proxy statements that were filed between May 15, 2013 and May 15, 2014.
Year-over-Year Industry Compensation:
|Financial Services-Non Banking||$91,038||$123,421||36%|
Further findings from the BDO 600 Survey of Mid-Market Board Compensation Practices:
- Size matters in director compensation – Company size continues to factor into the amount of compensation received. On average, directors for companies in the $25 million to $325 million revenue range receive $119,619, showing a 15 percent increase from the previous fiscal year. In the $325 million to $650 million revenue range, average director compensation jumped to $138,789 from $119,911 (an increase of 16 percent). Despite the largest revenue range ($650 million to $1 billion) showing the highest average compensation at $146,998, it only saw a 3 percent increase from the previous fiscal year. While the study reveals that increases in compensation are highly correlated with the revenue size of a company, pay mix does not vary greatly based on the same metric. Thus, all companies favor equity compensation over cash, with stock awards comprising the majority of equity compensation. Alternatively, companies in the largest revenue range receive a smaller average stock option grant ($8,707) than companies in the smallest revenue range, with an average of $21,689.
- Compensation in non-banking financial services experiences strong growth - Director compensation in financial services (banking and non-banking) has lagged behind the other surveyed industries for several years. While banking continues to see the lowest average compensation ($67,301), with only a 4 percent increase from the previous fiscal year, non-banking financial services companies experienced tremendous growth over the previous fiscal year, with the highest overall percentage increase of 36 percent among all surveyed sectors. Often trailing notably behind the other industries, this increase has helped to close the gap between non-banking financial services companies and the other surveyed industries and to propel it out of the bottom two, surpassing retail. As the non-banking financial services sector contends with pervasive reputational management issues, investor activism and compliance pressures, companies may be looking to entice post-recession, outside directors, whose appointments indicate a culture of transparency and impartiality, and have the skills, knowledge and experience to rebuild in the new normal.
- Bullish industries back on track, while others show lackluster compensation change - The three most highly compensated sectors--energy, healthcare and technology--for directors this fiscal year saw a significantly low or negative percentage increase last fiscal year (2 percent, -1 percent and -2 percent, respectively). These sectors continue to lead the group in overall compensation; however, a favorable growth trend is once again resurfacing, as each experienced notable percentage increases in compensation from the previous fiscal year (9 percent, 11 percent and 11 percent, respectively). Banking continues to be the least compensated sector for directors ($67,301), with retail ranking just above banking ($118,997). Retail shows the lowest percentage increase from the previous fiscal year (2 percent) out of all the surveyed sectors. This is likely due to the continued stagnation of sales and an increasingly challenging business and marketplace environment, including regulatory and compliance pressures, risk management issues and a lack of top level expertise to tap to successfully manage omnichannel strategies.
*Material discussed is meant to provide general information and should not be acted on without professional advice tailored to your firm’s individual needs.
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