The 2019 U.S. Technology Spencer Stuart Board Index (Tech Index) reflects the board practices and trends of 200 public tech companies with the highest revenues based on proxy statements released between July 1, 2018 and July 1, 2019.
I. Selected Spencer Stuart Perspectives
- Like the S&P 500 companies, the largest tech companies are enhancing board diversity on multiple fronts including gender, skills and experiences as they add new independent directors.
- The profile of the new director class is shifting, and CEO experience is required less often. While a technology background remains a priority, tech boards are also adding directors with more diverse functional and industry backgrounds.
- Independent leadership structures (independent chair and split CEO/chair roles) continue to rise, albeit modestly from 2018.
- Average board size has increased to 9 members, remaining smaller than the average size of S&P 500 companies at 10.7 members.
- The tech companies that paid a compensation premium to independent chairs or lead/presiding directors in 2019 gave a large percent increase over last year’s premium; however, tech companies overall are less likely to pay a premium to lead/presiding directors than S&P 500 companies.
II. Highlights by Category
1. Composition of new directors.
a. Independence. Approximately 53% (105 companies) of the 200 tech companies added new independent directors in 2019, compared to 42% in 2017. For 2019, this collectively constitutes a total of 166 new directors among these companies, up from 136 in 2018.
b. Experience. Almost one-third (55 of 166 companies) of new directors are serving on their first public company board, compared to 50% in 2018. Thirty-seven percent (37%) have financial backgrounds (financial executives, bankers, investors or accounting executives), an uptick from 27% in 2018. Only 25% of new directors have experience as a CEO, compared to 36% in 2018. Unsurprising, technology remains the most common industry background for new directors of the Tech Index companies.
c. Diversity. Women account for 43% of the 166 new independent directors, a 6% increase from 2018. Of the 63 tech company boards that increased in size in 2019, 25 added a woman to the board. Spencer Stuart predicts that this number may increase over the next year from external pressures such as investor expectations as well as regulations including California’s relatively new law that requires certain corporate boards have at least 1 woman. Minority directors (defined as African-American/Black, Hispanic/Latino or Asian) constitute 20.5% of new independent directors, which is relatively unchanged since 2018.
2. Independent leadership. One hundred eight (108) of 200 tech boards (54%) have an independent chair, an increase from 97 boards (49%) in 2018. The number of companies splitting the chair and CEO roles is at 75% (149 companies), compared with 144 in 2018. Fifty-three percent (53%) of S&P 500 companies separate the roles. Forty-five percent (45%) of tech boards have a lead/presiding director. Seventeen (17) of the 200 tech boards fail to have any form of independent leadership.
3. Tenure, age and retirement age. The average tenure for directors is 7.7 years, down from 8.7 years in 2017. The average tenure for S&P 500 boards is 8 years. The average director age remained about the same from 2018 to 2019 at around 61.5 years old. Thirty-five percent (35%) of tech boards have an average age of 59 years or younger, which is almost double the percentage of S&P 500 boards (18%).
Among the tech companies that have a mandatory retirement policy, the most common age limit is 74 years, which is the same for S&P 500 boards. Thirty percent (30%) of the tech companies report having a mandatory retirement age, a drop from 38% in 2017. This percentage is considerably lower than for S&P 500 boards in 2019, which is 71%.
4. Annual Director Elections. Nearly two-thirds (65%) of technology company boards elect directors annually, up from 63% in 2017. In contrast, ninety percent (90%) of S&P 500 companies have annual director elections.
5. Board Evaluations. Ninety-two percent (92%) of boards annually perform some form of evaluation, up from 87% in 2018. S&P 500 companies’ percentage is a little higher at 98%. Twenty-eight percent (28%) of boards disclosed evaluating all three levels: the full board, committees and individual directors. Meanwhile 42% of S&P 500 boards disclosed evaluating all three levels.
6. Board size and meetings. The average tech board size is slightly smaller than it is for S&P 500 companies. The tech boards have an average of 9 members, an increase from 8.7 in 2018. Whereas in 2019, the average S&P 500 board size is 10.7 members.
The Tech Index companies met slightly more frequently in 2019 than S&P 500 companies. The tech boards met an average of 8.5 times while the S&P 500 boards met 7.9 times. For the tech companies, the audit committees met 8 times a year on average, while the compensation committee met 6.3 times on average, and the nominating/governance committee met close to 4.2 times on average. These meeting frequency numbers are comparable to those of S&P 500 companies.
7. Board compensation. The average director compensation increased to $290,751 from $288,830 in 2018. Whereas S&P 500 companies had an average director compensation of $304,856 in 2019. Stock awards and cash account for 66% and 31%, respectively, for director compensation at the tech companies. Deferred compensation plans are available to directors at 65 of the 200 tech companies. The average cash retainer for directors increased to 2.4% in 2019 to $64,913, and close to all (195 of 200) of the tech companies offer a cash retainer. Of the 9% of tech 200 companies that pay a meeting attendance fee, the average amount paid is $2,250. Whereas of the 9% of S&P 500 companies that pay that fee, the average amount paid equals $2,402. No companies with revenues of less than $500 million provide a meeting attendance fee.
Tech companies are less likely to pay a premium to lead/presiding directors than S&P 500 companies. Only 36% of tech companies pay this premium compared to 77% of S&P 500 companies. Of the 72 tech boards that gave additional compensation to lead/presiding directors, the average premium increased 8% to $34,740. And, 106 tech boards paid a premium to their independent chair (up from 89 last year), and the average premium was $93,596, which represented a 10.5% increase over last year.
8. Diverse directors. Ninety-two percent (92%) of tech boards have 1 or more female directors. All but 2 S&P 500 (99.6%) companies have at least 1 female director. Spencer Stuart reports that the largest gain among the tech companies was among the smaller companies (less than $500 million) where the percentage of companies having at least 1 female director jumped from 68% in 2018 to 87% in 2019. Women constitute 22% of all directors at the tech companies studied, compared to 26% of all S&P 500 directors.
9. Committees. Besides the key committees (audit, compensation and nominating/governance committees) the next most common board committees at the tech companies are executive (12.5% of companies), finance (10%), science and technology (8%), strategy (5.5%), and risk (5.5%).