Public vs. Private Boards: Does the Compensation Reflect the Role?

Compensation Governance Partners (CGP) filled a gap in market data by introducing its annual Private Company Director Compensation (PCDC) Survey in 2020.

In this article, we contrast data from our survey of private companies with public company director / trustee compensation and compare these results with those from our 2020 article.

Key Highlights:

• Public company director compensation remains significantly higher than private company director compensation and is also increasing at a faster rate, resulting in larger premiums

• The composition of public company boards has evolved since 2020, with more women representation and younger directors

Public vs. Private Boards: Does the compensation reflect the role?

Generally, it is more difficult for privately held organizations to benchmark director compensation, as privately held organizations are not required to publicly disclose director compensation. To better understand the private director compensation market, CGP launched the first edition of its PCDC survey in the summer of 2020; which has since been conducted on an annual basis.

By contrast, director compensation disclosure at publicly traded companies is required and is typically in management information (proxy) circulars. For their internal benchmarking, these organizations create peer groups of other similar publicly traded companies and analyze the data to determine competitive director compensation levels. Typically, director compensation is composed of a combination of cash retainers, equity retainers, and/or meeting fees, with amounts differing by role (i.e. Board Chair / Member, Committee Chair / Member).

In the observations below, we compare director compensation among selected TSX 100-300 companies of comparable size to our PCDC survey population (revenues of less than $250 million). We show the premium that public companies pay compared to all private company boards, as well as the subsets of advisory boards and governance / fiduciary boards.  

Advisory boards serve as an informal body that provide non-binding advice to the CEO and the management team. On the other hand, governance / fiduciary boards have a formal fiduciary responsibility to the organization and can be held liable if the organization fails to comply with relevant legal and financial requirements. All boards of publicly traded companies are governance / fiduciary by default, while prevalence varies for boards of privately held companies (approximately 60% governance / fiduciary vs. 40% advisory boards in our sample).

Annual Cash and Equity Retainers – Board Chair & Board Member

Compared to private companies, public companies pay significant premiums of 70%-150% for annual cash retainers. The premium when considering only governance / fiduciary boards of private companies decreases to 25%-100%, while the premium for advisory boards of private companies increases to 125%-225%. This difference is likely driven by the level of fiduciary and legal responsibility that is present for a governance / fiduciary board, which translates to higher annual retainers compared to advisory boards.

We note that on a dollar basis, the median cash retainer for both Board Chairs and Board Members of publicly-traded organizations has increased significantly since 2020, while cash retainers have remained relatively consistent for both Board Chairs and Board Members of privately-held organizations. This is perhaps not surprising as publicly traded companies tend to conduct a formal director compensation review every 2-3 years as a matter of good governance, while private companies are less likely to conduct such reviews on a regular basis.

Equity-based retainers are also significantly more common among publicly traded companies, with approximately three quarters (75%) of publicly traded companies providing them compared to only 12% of private companies. A difference in equity vehicles also exists between publicly traded companies and private companies; the former is more likely to award deferred share units (DSUs) (65% [1]), restricted share units (RSUs) (25% [1]), and options (25% [1]), while the latter typically use options or stock awards. Pragmatically, it is more difficult for private companies to provide share capital as compensation, which likely accounts for the decreased prevalence of share-based compensation.

[1] Percentages do not add to 100% due to some organizations offering more than 1 equity vehicle to their directors.

Meeting fees are similar for public boards and private boards on an absolute basis (typically $1,500 per meeting vs. $1,200 per meeting, respectively), where offered. We note that “all-in” board retainer structures (i.e. a retainer with no additional meeting fees) are becoming more prevalent across Boards in Canada, particularly among publicly traded companies (up from 55% in 2020 to 82% in 2024 within our sample). A similar trend exists for privately held companies, which is up from 62% in 2020 to 70% in 2024 among our sample. The one exception is within the not-for-profit sector, where there is a preference towards the variable structure (i.e. a retainer with additional meeting fees).

Additional Committee Retainers

Public company committees usually pay more compared to private company committees for committee chairs, while additional retainers for committee members are generally comparable. Public companies typically pay committee chairs between 100% - 150% more than committee members, while private companies typically pay chairs between 0% - 100% more than members.

Board and Committee Composition

Public company boards vs. private company boards appear more comparable in 2024 in terms of composition. The composition of private company boards has remained relatively consistent from 2020 to 2024, while some subtle changes have occurred among public company boards, which may be in part due to the recent focus on diversity at the board and executive levels.

Diversity among Board members has become an increasingly hot topic since our 2020 article, with publicly traded organizations now required to annually report on the diversity information of their boards and senior management teams, including representation of 4 designated groups: women, Indigenous people, persons with disabilities, members of visible minorities. This has corresponded with the number of women on publicly traded company boards doubling since 2020 (from 1 to 2).

All public companies have committees while only approximately 60% of private companies have committees (80% of governance / fiduciary boards vs. only 22% of advisory boards). Audit / Finance and Compensation / Human Resources / Governance are the most common committees for both private and public companies. Public companies typically have more committees than private companies, but also have smaller committees that meet less often.

Public versus Private Boards

Stepping back from the data, there are intuitive advantages and disadvantages associated with pay for public and private company board directorships – while directors of public company boards receive higher compensation and exposure, there is also enhanced scrutiny and risk from shareholders and potential investors due to the more extensive public disclosure. On the other hand, private company directors, particularly those on advisory boards, face lower regulatory scrutiny with correspondingly lower compensation.  

Summary

As expected, public companies still pay more than private companies, with the gap widening significantly since 2020. The composition of public company boards has altered slightly, and is now more comparable to private company boards.

If you wish to purchase a standard or customized report of our Private Company Director Compensation Survey results, please contact Jessie Geng at jgeng@compgovpartners.com or 647-484-7222 x160.