How to set board compensation

Target keyword: how to set board compensation
Intent: Informational / Checklist
Last updated: 2026-10-05

---

What this guide is (and is not)

A practical checklist for chairs, compensation committees, and nonprofit boards deciding whether and how to pay directors. Not legal, tax, or compensation-consulting advice. Have counsel and, for public companies, your compensation advisor review anything you adopt. Figures cited below come from public sources listed on /board-compensation with year and URL.

Start with the board type

1. Public / reporting companies. Non-employee director pay is disclosed in the annual proxy (SEC Item 402 tables). Spencer Stuart's 2025 U.S. Board Index reports S&P 500 average total non-employee director compensation of $336,352 (≈59% stock awards, ≈36% cash) and a $110,000 median annual cash retainer. Independent chairs and lead directors usually receive additional retainers. Meeting fees are now rare at S&P 500 boards.
2. Private companies. Pay is more varied. The 2025 CAP / Private Company Director survey (633 respondents) reports a $38,800 median annual cash retainer, $2,500 median per-meeting fee where used, and 37% offering long-term incentives (median award value $50,000). Ninety percent of respondents provide some director compensation.
3. Venture-backed / early startups. Practices are often equity-heavy and cash-light for independent directors; investor directors and founders frequently take little or no incremental board cash. Treat any percentage ranges you hear as anecdotes unless you have a primary survey you can cite.
4. Nonprofits. Most U.S. nonprofit directors serve as volunteers (BoardSource). Compensation is legally permissible in some contexts but uncommon, can affect independence determinations, and — when paid — must be reasonable and disclosed on IRS Form 990 Part VII. Prepared does not invent an unpaid percentage; BoardSource's public guidance says "most," not a free public statistic we can quote as a number.

A careful process (any board type)

1. Write the purpose. What problem does pay solve — time, expertise, equity of who can serve, market competition for directors? If the answer is unclear, fix workload and role design first.
2. Check governing documents and law. Bylaws, charter, state nonprofit or corporate law, and any investor rights agreement. Some entities restrict or forbid director pay.
3. Gather comparables. Public proxies, Form 990 filings for peer nonprofits, NACD/Pearl Meyer or CAP surveys you actually have access to, and — when enough peers opt in — Prepared's anonymized aggregates at /board-compensation (nothing numeric until ≥10 non-demo boards per cohort).
4. Separate the decision from the beneficiaries. Directors who would receive the pay should recuse from the vote that sets their own compensation. Record the recusal.
5. Document the record. What materials you read, which peers you considered, who advised, what you decided, and why. That is the same discipline Prepared keeps for other board decisions — prepare, decide, prove.
6. Prefer simple structures. Annual retainers over proliferating meeting fees; clear chair/committee premiums; equity with clear vesting for private/public companies; expense reimbursement policies even when base service is unpaid.
7. Revisit on a calendar. Put director pay on the annual governance calendar. Markets move; so does workload.

Nonprofit-specific notes

• Volunteer service supports independence and public trust for many charities.
• If you introduce stipends (for example, to widen who can serve), document the equity rationale, get counsel, and plan Form 990 disclosure.
• Reimbursement for travel, childcare, or lost wages is different from a retainer — still document it.
• Paying directors can change who counts as an independent voting member for Form 990 Part VI — ask your CPA.

Public-company-specific notes

• Align with your peer group and compensation consultant's report.
• Watch stock ownership guidelines, committee premiums, and chair/lead differentials.
• Remember: the proxy is public. Assume employees, investors, and journalists will read it.

How Prepared Board helps

• Keep the decision record (materials, recusals, vote, evidence) on the compensation decision itself.
• Use the governance calendar so the annual review is not forgotten.
• Opt into peer compensation aggregates only when you want to contribute anonymized figures — demo boards never count; cohorts stay blank until N≥10.
• Export the full record if you leave (/leaving-prepared).

Prepared does not compute a "fair pay" score, does not file Form 990 or proxies, and does not replace a compensation consultant.

Sources

See the linked, dated citations on /board-compensation. Primary among them: Spencer Stuart U.S. Board Index 2025; CAP / Private Company Director 2025 survey; BoardSource board member compensation guidance; IRS Form 990 Part VII instructions; SEC executive compensation / proxy resources; NACD / Pearl Meyer 2025–2026 Director Compensation Report (scope cited; member-only detail not quoted unpaid).