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Fair board compensation


Lupo Lupus
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Do you use any rule-of-thumb for what you consider a fair level of board compensation, like x % of sales? And if so, what do you use as yardstick (sales, earnings, employees, mcap ...). I have so far not found a quick-and-dirty way to assess the level of board compensation. Also, do you do any adjustments for smaller companies (board compensation is partly a fixed cost and hence will weigh more on smaller firms).

 

EDIT: I realized my post may be ambiguous. I am talking about the *level* of compensation (ie whether its excessive in dollar terms) not *how* management is incentivized (eg fixed vs variable compensation) So when talking about compensation as a % of sales this is just a way to normalize with firm size.

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Not really, but if I invert, I don't think x% of sales sounds like a good incentive.

 

In general, I more easily know what I don't like because it stands out, usually as too much or as not incentivizing the right things.

 

I think the general idea should probably be that the board compensation should be competitive within the industry so that you can get the right kind of people on your board.

 

Ideally they would be paid a token amount and have huge stock ownership, but that's rarely the case.

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With regards to salary I compare it to competitors that are similarly sized..  Bigger issue for me is the makeup of the board (try to look at the last 3 new board members and figure out what they bring to the company) and the size of the board. 

 

For me this is one of the last things I look at so I rarely find an issue because if they already hit the boxes they are going to hit this.

I generally invest in small and micro caps.  I have only  killed 2 potential positions because of this.

 

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