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Article | Executive Pay Memo North America

S&P 500 director compensation trends in 2020

Governance Advisory Services |Executive Compensation

By Rebecca Burton and Peter Kim | December 15, 2020

Total expected pay for 2020 continues to rise, while boards navigate a near-term pandemic response and plan for the longer-term realities.

Willis Towers Watson’s Global Executive Compensation Analysis Team (GECAT) completed its annual year-over-year comparison of S&P 500 director pay program results, contrasting 2020 proxy data against that of 2019. Our analysis of nonemployee director compensation looks at an expected level of pay for a median outside director as of fiscal year-end 2019 and 2018, which includes forward-looking pay level adjustments disclosed for 2020 and 2019 but does not include any potential disclosed impact due to COVID-19. The latest review shows an expected increase in total direct compensation in 2020 occurring despite minimal changes in median value for individual components of pay, suggesting that outliers and companies with variable fees are driving the increases in total pay levels; however, with COVID-19 still shifting the landscape and affecting certain industries more than others, some boards are having to adapt for the short term while still preparing for the long-term impact of the ongoing pandemic.

Figure 1 is an overview of director pay elements with a focus on percentiles and prevalence, representing the most forward-looking expected pay values and not compensation actually paid.

2018 2019      %
($ millions)
$10,086 $10,187 1%
Board cash retainer $100,000 $100,000 No change 97%
Board meeting fee $2,000 $2,000 No change 7%
Committee cash retainer $10,000 $10,000 No change 36%
Board meeting fee $1,500 $1,500 No change 10%
Committee chair extra retainer $15,000 $15,000 No change 95%
Annual cash compensation $105,000 $107,500 2% 98%
Expected value:
Common stock ($) $150,018 $160,000 7% 15%
Deferred stock and
phantom stock ($)
$159,975 $160,000 No change 18%
Restricted stock ($) $164,950 $165,000 No change 66%
Full-value stock ($) $162,500 $165,000 2% 97%
Stock options ($) $89,978 $86,424 - 4% 8%
Annual/recurring stock compensation ($) $166,743 $170,154 2% 99%
Total direct compensation $282,991 $286,292 1% 100%
ONE-TIME STOCK $175,000 $156,000 - 11% 8%
One-time stock grants
$21,875 $19,500 - 11% 8%
Total compensation
(with one-time stock)
$285,000 $290,053 2% 100%
Figure 1. Median outside director compensation as of fiscal year-end*

*See endnotes.

Pay program design: Pay mix for nonemployee board members held steady at 60% equity and 40% cash. The median value of individual cash components remained static while the median value of total annual cash compensation increased 2%. Annual stock compensation increased the same amount (2%), but total direct compensation went up just 1%.

  • The prevalence of board or committee per-meeting fees each declined by one percentage point while the prevalence of meeting fees paid after attending a predetermined number of meetings (threshold meeting fees) increased by one percentage point.
  • The number of companies granting common stock decreased one percentage point as the median value of common stock increased 7%, from $150,000 to $160,000; the median value now approximately matches that of other full-value stock.
  • The number of companies granting restricted stock increased one percentage point. Two-thirds (66%) of companies now deliver all or a portion of annual equity compensation through time-vested restricted stock grants, an increase of one percentage point over the prior year. Fifty-one percent of companies issue restricted stock units. The favored vesting schedule for restricted stock is one-year cliff (69%) followed by immediate vesting (13%).
  • One-time initial stock grant prevalence decreased one percentage point as value at the median dropped 11% from $175,000 to $156,000.
  • Cash proration (for partial-year service) is near universal (97%) while equity compensation proration has been recorded for two-thirds (66%) of the S&P 500.

Pay program changes: Excluding any adjustments made due to COVID-19, more than half (55%) of companies made changes to their pay programs. A little over a quarter of companies (26%) increased their annual cash retainer; nearly a third of companies (31%) increased the value of their annual equity grant, and 15% of companies adjusted their noncore pay elements.

COVID-19: As of December 7, 2020, our research into 2020 proxies and Form 8-K current event filings show that just 16% of the S&P 500 have announced changes to their director compensation as a direct response to an uncertain environment created by the COVID-19 pandemic. Specifically, 14% of companies directly reduced compensation, with most changes made to cash compensation:

  • 86% reduced cash only, 10% reduced both cash and stock, 1% reduced stock only and 3% did not disclose.
  • The median value of the reductions is 50% while the median time frame is six months.
  • Industrials (34%), consumer discretionary (32%), energy (25%), communication services (18%) and health care (17%) all disclosed changes at a rate higher than the full index (16%).
  • No impact was noted among companies in the utilities sector (0%); limited changes were noted among financials (2%), materials (4%) and consumer staples (6%) sector companies.

Board roles and responsibilities during the COVID-19 global crisis are evolving as companies continue to adapt to current and future challenges. Most changes made were immediate reactions to an uncertain environment and are expected to be short-lived, with no examples of changes expected to last beyond 12 months; however, it remains to be seen to what extent these potential changes will impact overall trends to compensation actually paid in 2020, or if they will permanently alter the scope of director compensation in some meaningful way.

Title File Type File Size
S&P 500 Director Pay Trends - Dec 2020 PDF 1.1 MB
  1. The 2020 S&P 500 sample consists of 499 publicly owned companies in the S&P 500 as of December 31, 2019. The 2019 S&P 500 sample consists of 498 publicly owned companies in the S&P 500 as of December 31, 2018.
    • Figures are expressed as percentages of all S&P 500 companies, unless otherwise specified.
    • The 2020 S&P 500 sample excludes one company that did not disclose director pay data for 2019.
    • Pay programs detailed in this report are compared with findings in last year’s S&P 500 director pay report for 2018.
  2. Annual cash compensation is calculated as follows:
    • Values reported for fees earned or paid in cash in the Director Summary Compensation Table are identified for each director, adjusted to reflect disclosed pay program changes for the future year.
    • Directors who did not serve the entire fiscal year, as well as directors in leadership positions receiving supplemental compensation (e.g., board chair, lead director) and chairs of the three primary committees (audit, compensation and nominating/governance), are removed.
    • The median value is identified for the remaining directors to determine the total cash compensation for “typical” directorial duties.
    • The value of the retainer is eliminated from the total cash compensation for the “typical” director to determine the value, if any, of total variable cash fees.
    • Annual cash compensation is the combined value of the annual cash retainer and the median value of variable cash fees.
  3. Stock compensation is determined using ASC 718 values reported in company proxy statements.
    • Full-value stock represents the combined value of all full-value grants, regardless of the form of the award, adjusted to reflect disclosed pay program changes for the future year.
  4. All board/committee meeting fees and retainers that are paid in stock are included under annual/recurring stock compensation.
  5. Total direct compensation includes annual cash compensation plus annual/recurring stock compensation.
  6. One-time stock includes initial and discretionary stock-based grants. The values reflect the incremental additional value above that of the annual grant.

Lead Associate, Executive Compensation (Arlington)

Associate, Executive Compensation (Arlington)

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