BOARDS OF DIRECTORS COMPENSATION ALTERNATIVES

Abstract

Directors, members of the Boards of Directors, have a fiduciary duty to protect shareholders’ interests. Yet, their interests are unlikely to be perfectly aligned with the shareholders’. Like all economic actors, directors may be presumed to prefer greater wealth to less wealth; hence, they should be responsive to financial incentives. Companies routinely use a variety of such incentives including additional fees for attending meetings, stock and option grants, and performance bonuses. Besides direct compensation, there are other motivations that could affect director behavior. A possible motive is the concern that directors have for being seen as able business people. A strong reputation is likely to be important in the market for getting more board seats or retaining the ones already held.