Understanding how deferred compensation can play a role in stabilizing boards and supporting board compensation objectives.
According to a recent Wall Street Journal article, compensation for board directors at the largest US companies was steady in 2020 for the first time in more than a decade. (See: Pay for Company Directors Stalled Last Year, but That Is Likely to Change
Citing independent third-party research, the article identifies that among the one hundred largest publicly traded companies in the US, median pay did not increase any—not even marginally—from 2019 to 2020.
The “why” that prevented the increase is obvious. In the face of a global pandemic, corporate boards were sensitive to how increasing their own pay would be perceived. Some companies even moved to reduce board compensation, albeit typically a temporary reduction.
An article published in SHRM (the Society for Human Resource Management) last March identified that in 2020, among more than 300 public, private, or nonprofit organizations surveyed, 20 percent “either rescinded a planned director pay increase or temporarily reduced director compensation.”
Many factors to consider when evaluating board compensation
Board members carry fiduciary responsibilities and a burden of oversight that can be significant. Most importantly, for both publicly and privately held companies, board members operate in an environment of ever-increasing public and regulatory scrutiny. In today’s hypercritical world, no matter what direction a board takes, its members will be the target of criticism and disapproval.
A deferred compensation plan can be an attractive strategy for rewarding valued board members while helping them manage their tax liability. Directors can defer receipt of equity awards until separation from their board service or until a specified future date chosen by the board member as plan participant. A creatively structured deferred compensation plan can help an organization retain valued board directors, ensure that board and organizational priories remain aligned, and deflect or avoid potential criticism regarding board compensation.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. Any tax advice contained herein is of a general nature. You should seek specific advice from your tax professional before pursuing any idea contemplated herein.
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