board of directors compensation in private companies

Board of Directors Compensation in Private Companies

The operation and management of any company regardless of its form of ownership are subject to a large number of rules and requirements. Moreover, such requirements and rules, set forth in corporate statutes or bylaws, are mandatory. Particularly strict and clear rules apply to the determination and payment of various types of remuneration to representatives of management structures. We suggest broadening your horizons a bit and learning a bit more about the board of directors compensation in private companies and the peculiarities of implementing this process.

How does the calculation and payment of compensation for executives of a private company work?

In contrast to publicly traded companies, private companies differ in some key characteristics in the process of calculating the remuneration of management representatives. First of all, it should be borne in mind that for this purpose they have no public assets, from which accruals to directors and shareholders can be distinguished. Therefore, when determining the amount and type of various payments, it is necessary to carefully check the available resources so as not to disrupt the financial stability of the company.

In addition, there is no single market equivalent for the salaries of the management of private companies – their size depends directly on corporate revenues. Not surprisingly, it will always be different when determining the size of payments – each company can only use its own expertise and resources for this question. On the other hand, such a situation can lead to the fact that executives may accrue their own payments without prior discussion with other representatives of the firm, which can be assessed as abuse of a director’s position.

However, this does not mean that private companies are forced to accrue salaries and other benefits to their executives at random. Typically, a company’s corporate payroll for directors consists of several parts, which include:

  • An annual advance, which is the director’s basic payroll for performing his or her immediate duties;
  • Fees for attendance at board or shareholder meetings, if the executive director is also a shareholder in the company;
  • Unscheduled payments become available when there are available financial funds in the company.

The amount and terms of the directors’ salaries or other benefits are set by the board of shareholders. For this purpose, the question of a cash payment is put on the agenda and the final decision is made by a vote of the meeting participants.

Who has the highest-paid board members in private companies?

The management structures of private companies are quite often not uniform. This means that different members have different amounts of money paid to them. The highest compensation is paid to an executive or general director – his payroll consists of several components, and he has many responsibilities. The size of payments to other management representatives – for example, shareholders – often depends on the real income of the company: the higher they are, the higher the amount of payments shareholders can receive.

It should not be forgotten that appointing and determining the amount of payments to directors is established at meetings, including meetings of private companies. It means that these indices can be changed, if the director is not faithful to his duties, or if there were any violations on his part. The decision on change of the size of payments is made collectively.