Study: Private Company Board Compensation

How Private Company Board Directors Are Compensated

There is an active and well-established market for private and public company directors. While a public company’s board director compensation is transparent, the same is not true for private companies. There are a number of sources for private company board compensation data. The data tends to be grouped into segments based on the revenue ranges of the businesses involved.

In an attempt to help make sense of this fragmented market, I summarized the highlights of forming boards and compensating people for their board service in an article published in August 2017. That article is a basis for the role and duties of a board, but here, we will specifically dive deeper into director pay.

Average Compensation for the Board of Directors

The market segments by company revenue size. Below is what I usually suggest as appropriate board compensation to owners forming a new board based on company revenue size:

• Under $20 million — Private companies under $20 million in revenue tend not to have boards. If they do, they are informal advisory boards. There tends to be little compensation, as these are ‘golf buddies’ and not traditional, independent outside directors.
• $20-$50 million — These businesses are starting to form advisory boards with a semblance of normalized function, although many are ‘consulting boards’ and not yet advisory boards. Compensation here tends to be a day rate for professional time.
• $50-$200 million — The boards tend to be true advisory boards, with regular schedules, agendas, and meaningful structure. Compensation is typically in the $20,000-$30,000 per year range and may be structured in several different ways. Some of these boards will transition to full fiduciary boards, over time, as ownership and management become different groups of people.
• Above $200 million — Compensation increases to the $25,000-$75,000 per year range, with a wider variation in terms of structure and total compensation. The majority of the boards in this range are fiduciary.

These figures exclude private equity (PE) portfolio companies, which tend to pay much more, and venture capital (VC) businesses, which tend not to pay cash compensation to directors, most of whom are typically insiders.

During my tenure as Chairman of Director Development and Training at the Private Directors Association, I saw postings for about 50 seats per year. To the extent compensation was listed in a posting, the data was generally consistent with these rules of thumb.

2022 Survey on Director Pay

The most recent study of director compensation was published by Private Company Director Magazine, along with Compensation Advisory Partners and Family Business Magazine.

The 2022 study included respondents from over 1,200 companies. About 62% of the respondents were under $100 million in revenue, and another 22% were greater than $250 million in revenue. The vast majority of the respondents were family businesses, with the balance being mainly privately controlled entities.

Median Board Retainer

Based on the data, the median board retainer by revenue is consistent with my past observations, with the overall median coming in at $30,000 per year, up from 2020. Contrary to prior observations, companies under $50 million in revenue were paying cash compensation of $20,000 in annual compensation. That is one benefit of a larger dataset, and a statistically valid approach, as compared to general observation.

Cash compensation was a combination of annual retainers and meeting fees. The public company practice of paying only via retainers is starting to be embraced by private companies, as meeting fees continue to decrease as a percentage of total compensation.

Other Resources on Director Compensation

There are a number of other compensation studies available. Many are behind website paywalls. Here are some of the more well-known sources:

• Lodestone Global has been publishing private company board compensation studies since 2013, which are available online.
• The National Association of Corporate Directors (NACD) also has compensation studies, for both public and private companies, which are behind their paywall.

A number of search firms have private databases that they use to recommend compensation to clients. These reports are for North American businesses. There are separate data sets for businesses located in Europe, such as Nurole.

Board Compensation Should Match Performance

So, while these thoughts summarize private company board compensation, they should be viewed as half of the equation. The other — and more important — half of this issue is board performance.

What are you getting for the compensation? To get the best results, the two need to be tied together. The board is a business expense made by the owners to enhance their investment, like other business functions. It needs to be evaluated and held accountable to get the best results. Regardless of what you pay, make sure you are getting the full value for what you spend.

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[Editors’ Note: To learn more about this and related topics, you may want to attend the following on-demand webinars (which you can view at your leisure, and each includes a comprehensive customer PowerPoint about the topic):

1. Resolving Shareholder Disputes
2. Episode 3: Where the Board’s Duties Stop & the C-Suite’s Duties Begin: An Overview of a Board’s Functions & Fiduciary Duties
3. The Effective Board

This is an updated version of an article originally published on May 13, 2021.]

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