Non-employee Directors

Non-employee Directors

Non-employee members of any board serve without pay, but they are entitled to equity plans in the corporation. Equity plans are to share options or incentives that are given to company employees or non-employee directors to allow them to own part of the company shares, and this extends even to privately-owned companies. Some companies may put a limit on the value that can be owned by the non-employee directors. What makes non-employee directors donate their time is that they have the authority to sell their shares. Other factors that make non-employee directors commit themselves are that they are allowed a retainer fee, which is in the form of cash. Such a retainer’s fee may be awarded quarterly or annually, depending on the decision by the board of directors. The retainer’s fee is for non-employee directors in publicly-traded companies.

Additionally, non-employee directors may be awarded a fee if they participate in committee meetings, which may include fees for participating in videoconference meetings. Other companies may opt to offers retainers fees instead of committee meeting fees. The retainer’s fees cover the time and effort put by the non-employee directors in their preparation and meeting participation. The retainer’s fee may be decided upon regarding the level of committee involvement by the non-employee directors. Moreover, non-employee directors receive annual grants such as restricted stock or deferred stock. Some companies may allow the non-employee directors to defer their equity awards to a future time, which allows the directors to identify the taxation of any earned compensation. Consequently, the non-employee directors receive tax-deferred compounding on their compensation..

References

Dah, M. A., & Frye, M. B. (2017). Is board compensation excessive?. Journal of Corporate Finance, 45, 566-585.

Sirkin, M. S., & Cagney, L. K. (2018). Executive compensation. Law Journal Press.