At its core, the director role is primarily one of stewardship rather than execution. While “pay for performance” has become a mantra for executive compensation in the last decade, the concept does not extend in the same way to director pay. Rather, director pay structures are oriented toward compensating for time commitments and leadership. Retainers and per-meeting fees for board and board committee services reflect the time spent on company-related activities. Supplemental retainers for board chairs, lead directors, and board committee chairs reward the additional responsibility of service in leadership positions. To be sure, equity grants are widely used but, rather than being linked to specific performance measures, they are meant more generally to establish an ongoing interest in the long-term prospects of the business.

Yet, today’s corporate directorship is at the forefront of rapidly evolving economic and social changes that are affecting the notion and purpose of the corporation itself. The board slate increasingly represents a diverse array of experiences and viewpoints, while individual directors are asked to exercise judgment and provide coordinated guidance on an expanding set of stakeholder issues. Though compensation is expected to remain rooted in the stewardship function of boards, pay plans will necessarily need to evolve in response to the increased complexity of the independent director role and the level of scrutiny to which it is subject.

(more…)