42. Board Compensation (definition)

NOTE: if you’re new to Ground-Up Governance, or are finding anything a bit strange or confusing, you might want to START HERE.

One interesting quirk of being a director is that, even though you are at the very top of the corporation and might be someone’s boss’ boss’ boss’ boss, you’re not actually really an employee of the corporation. Sure, employees of the corporation *can* be directors. It’s just that being a director doesn’t make you an employee. Make sense? Of course it does.

Despite not being employees, people are often paid to be directors. It’s sort of similar to how lawyers or consultants get paid by their clients without being technically employed by those clients. Except directors are usually not paid by the hour because it would give them an incentive to have lots of super long board meetings even if they didn’t need to. Directors usually get the same amount of money no matter how much work they do, give or take. So, maybe it’s more like when you got an allowance as a kid – the same amount of money no matter how many chores you did that week. Except sometimes directors get paid in stock or complicated stock-like things that can increase in value if the corporation performs well…and that’s probably not at all like your allowance. You might have cleaned the house, but your parents probably didn’t let you own a part of the house based on how often or well you cleaned it. And sometimes directors even *have* to own stock to try to prove to the shareholders who elected them that they will make decisions in their best interests – as in, “hey if we both own stock, then that probably means we both want the price of the stock to go up.” So it’s really not like your allowance after all.

Anyway, a lot of directors get paid. Most people refer to the pay that directors get as “board compensation” or “director compensation.” Some people really like brevity and call it “director comp” just to be cool. Oh, and some directors get paid LOOOOTTTSSS of money, especially if the corporation is a really big listed corporation.