The NASPP Blog

Earlier this fall, Frederic W. Cook released the findings of their 2015 Director Compensation study in a report titled “2015 Non-Employee Director Compensation Report”. In today’s blog I share some of the stock compensation related highlights from their report.

Demographics

The study was conducted with analysis of non-employee director compensation practices at 300 US public companies across a variety of sectors.

One Size Fits All?

In this year’s study, virtually all size categories (small, medium and large-cap) of companies that were studied compensate non-employee directors with primarily stock compensation (meaning more than 50% of director compensation was paid in stock awards and/or stock options). This continues a trend of increasing the equity compensation piece of the compensation pie, which makes sense when you think about aligning director compensation with the shareholder value they are tasked to oversee. Interestingly, while stock compensation ruled the majority when looking at size of company, it didn’t necessarily represent the majority of compensation in each industry sector. The financial services and industrials sectors have yet to pass the 50% mark in issuing equity over cash (cash still is the majority of compensation in those industries).

Stock Awards Continue Their Reign

The dominant equity compensation vehicle is full value stock awards (or units). 85% of the companies in the study use dollar denominated stock awards rather than share numbers. Stock option grants to directors continue to diminish. The technology sector continues to be the heaviest user of stock options to compensate directors, but even that industry is trending down in stock option usage – only 22% of tech companies issued stock options to directors (down from 32% the prior year).

The Trend Continues: Stock Ownership Guidelines

We’ve previously blogged about the continuing uptick in the number of companies adopting share ownership guidelines for executives and directors. The overwhelming majority (96%) of large-cap companies have stock ownership guidelines in place for directors. Small-cap companies continue to catch up in implementing guidelines for directors, with 60% having some form of guideline and/or retention policy in place. The good news is that’s up from just over half of small-cap companies last year. According to the Frederic W. Cook report, “The median ownership requirement is now five times the annual cash board retainer.” 10% of the companies studied have a mandatory hold-until-retirement policy for directors.

The report on this study, along with many other NASPP and outside surveys and studies can be found in the NASPP’s Survey and Studies portal. NASPP and co-sponsored surveys can also be found in the Surveys section of our website.

-Jenn