In response to past litigation involving director compensation amounts, we note that the prevalence of limits on director pay continues to increase. In 2019, the majority of companies reviewed disclosed director pay limits.
Director Pay Limit Type
In general, companies are evenly split between limiting equity awards only and limiting both cash and equity compensation. A slight majority of Top 200 and Mid Cap 200 companies only place a limit on the value of equity awards that are granted to a director in a given year, while a slight majority of Small Cap 200 companies place a limit on the aggregate value of both cash and equity awards.
Director Pay Limit Approach
Pay limits are generally disclosed as either a dollar value, a number of shares or a combination of the two. The overwhelming majority of companies disclose pay limits for directors as a dollar value.
Director Pay Limit Values
When calculated as a dollar value, director pay limits are generally correlated with company size.
Regardless of company size and the limit type (equity only or cash and equity), we note the majority of limits are set within a range of 2x – 5x of the annual compensation component being limited.
Download our 2020 Director Compensation Study here.