Study: Private Company Board Compensation

How Much Are Private Company Board Directors 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, and the data tends to group into segments based on 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.

What Is the 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, and 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, agenda and meaningful structure. Compensation is typically in the $20,000 – $30,000 per year range, and may be structured several different ways. The boards are transitioning to full fiduciary boards in this range.
• Above $200 million—Compensation increases to the $25,000 – $75,000 per year range, with a wider variation in structure and total compensation. The majority of the boards are fiduciary.

These figures exclude PE portfolio companies, which tend to pay much more, and VC businesses, which tend not to pay cash compensation to directors—most of which 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.

2020 Survey on Director Pay

Recently, a new study of director compensation was published by Private Company Director Magazine, along with Compensation Advisory Partners and Family Business Magazine.

The initial study was published in 2019. The 2020 study included 982 respondents. About 60% of the respondents were under $100 million in revenue, and another 20% 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 $28,000 per year, down slightly from 2019. Contrary to prior observations, companies under $50 million 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.

Additional Findings

• Not more than 25% of the respondents used some form of long-term compensation, which was mainly equity-based for those that did.
• Independent lead directors and board chairs earn an additional $13,200 to $20,000 per year, while committee chairs are often paid an additional $5,000 per year.
• Board size has increased from 2019, up to 6-10 with a median of eight directors seated.
• Diversity in the boardroom is increasingly more important, and I expect that trend will need more time to be truly impactful.

My observations, presented above, were not scientific, but good approximations to help owners understand how and how much a board director is paid. The survey is statistically robust, and fortunately,  corroborates my unscientific observations.

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 their own, private databases that they use in recommending 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 Board 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, just as with all other business functions. It needs to be evaluated and be held accountable to get the best results. Regardless of what you pay, make sure you are getting 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 webinars: The Role of the Board in a Private Company and The Effective Board.]

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