- Tech Industry Boards Most Highly Compensated for Third Year in a Row, 6% Increase in Comp -

CHICAGO--(BUSINESS WIRE)-- BDO USA, LLP, one of the nation’s leading accounting and consulting organizations, released the findings of its annual board compensation study which tracks middle market board compensation by industry, including energy, health care, manufacturing, real estate, retail, technology, banking and other financial services. The study found that total director compensation among the 600 mid-market companies studied remains relatively flat, with a modest 2% median increase and an average of $110,500.

Technology remains the most lucrative industry for board members for the third year in a row, with compensation averaging $174,950, a 6% increase from last year. This is more than two and a half times the amount of the lowest-compensated industry: financial services, where board directors receive an average of just $68,125. The highly compensated Tech directors are followed by energy ($139,690), health care ($118,235), manufacturing ($105,200), real estate ($103,860), retail ($97,380), banking ($76,550), and other financial services (excluding banking) ($68,125).

“Last year we predicted that compensation would start to normalize this year, and it has,” said Derrick Neuhauser, Chairman of the BDO Global Equity Team and Midwest Practice Leader for the Compensation and Benefits Practice. “The most highly compensated industries tend to favor equity grants in the form of restricted stock; however we also found slight increases in board retainer fees this year, as higher compensation becomes necessary to support the tremendous increase in risk and responsibility that board directors have taken on due to the financial crisis.”

In the middle market, the size of the entity does not have a significant bearing on director compensation; the average difference in compensation between the smallest and the largest corporations is just under $6,000. In contrast, the spread between highest and lowest compensation by industry segment is approximately $106,800. Within the industry segments the makeup of compensation (board retainers & fees, committee retainers & fees, stock awards, and stock option awards) varies widely. Generally, the industries that pay more do so via equity (stock and/or stock options). Fixed pay (i.e., retainers and fees) range from $42,800 (health care) at the low end to $65,000 (energy) at the high end whereas variable pay (i.e., stock and stock options) has a much wider range of $15,000 (banking) at the low end to $113,250 (technology) at the high end.

These findings are from the most recent edition of The BDO 600: 2010-2011 Survey of Board Compensation Practices of 600 Mid-Market Public Companies which examines the director compensation practices of publicly-traded companies with annual revenues from $25 million to $1 billion in the energy, health care, manufacturing, real estate, retail and technology industries as well as publicly-traded companies with assets between $50 million to $2 billion in the banking and financial services (excluding banking) industries. The study examined proxy statements that were filed between 8/15/2009 and 8/15/2010.

Additional Findings from the BDO 600 Mid-Market Board Compensation Study:

Retail, Technology and Health Care Directors Receive Largest Pay Increases

While compensation remained relatively flat for the majority of industries studied, directors in retail, technology and health care took home higher pay this year than last. Retail saw a significant increase of 14% which can be attributed to three things: an increased focus on attracting seasoned executives as directors, an increased focus on retaining directors through the current economic climate, and improved company performance. Tech and health care were more modest at 6% and 5.5% respectively, but still noteworthy given that all other industries either remained flat or increased by only 1-2%.

Stock and Stock Options Lead in Director Pay Mix

Average compensation for directors in these 600 companies is $110,500. This value is comprised of 42% board retainers & fees ($46,870), 7% committee retainers & fees ($7,388), 34% full-value equity awards ($37,769), and 17% stock option awards ($18,473). The value of stock-based awards makes up slightly more than half of the compensation mix, at 51%. When broken down by industry, higher percentages of stock and stock options in the pay mix lead to higher total overall compensation; generally the industries that pay more do so via equity (stock and/or stock options).

Revenue Has Minimal Impact on Pay in the Middle Market

In terms of revenue size of the corporate entity, compensation tends to increase as revenue increases, but the correlation is only slight for directors. Companies are broken into three revenue categories: $25M-$325M, $325M-$650M and $650M-$1B. Average compensation of the companies in the smallest revenue category is $109,000, the middle category is slightly lower at $108,580M, and average compensation of companies in the largest revenue category is $115,000.

Restricted Stock Grants Overshadow Stock Option Grants

In general, at least twice as much value is granted in restricted stock than stock options. On average among all 600 companies studied, directors receive $18,470 in stock options (17% of their pay mix) and $37,770 in restricted stock (34% of the pay mix). This is not surprising, as stock options have lost their luster because of the uncertainty in the market. Restricted stock is less dilutive, minimizes the expense in the financial statements and will always deliver some economic value. Health care is the only industry that prefers stock options over restricted stock at $32,510 and $42,920 respectively. Real Estate favors restricted stock more than any other industry at $39,620 (38% of the pay mix) versus stock options at $4,280 (4% of the pay mix).

Tech Directors Take Home Largest Paychecks

Consistent with the study findings of previous years, technology directors continue to lead the pack when it comes to compensation. Tech directors receive an average total compensation of $174,950, made up of $49,520 board retainer fees, $12,180 committee retainer fees, $77,885 in full value stock and $35,365 in stock options. Tech’s committee retainer fees and equity awards are the highest of any industry.

About BDO USA, LLP

BDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax, financial advisory and consulting services to a wide range of publicly traded and privately held companies. For 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals. The firm serves clients through 39 offices and more than 400 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multinational clients through a global network of 1,138 offices in 115 countries.

BDO USA, LLP, a New York limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. For more information please visit: www.bdo.com.

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