Boardrooms in the United States are continuing to evolve. From increased diversity to compensation and post-pandemic trends, the new skills and perspectives are redefining what boards look like and how they will operate in the coming years.
The 2022 Spencer Stuart Board Index, now in its 37th year, was recently released. The report looks at the boards of the S&P 500 and has become the definitive guide to governance practices and board composition.
We recommend downloading the entire report as it provides an in-depth analysis of board composition, board organization and process, and director compensation. Below are some of the highlights from the report.
Continued Focus on Diversity
New directors in 2022 from previously underrepresented groups (women, racial and ethnic, and LGBTQ+) accounted for nearly two-thirds of appointments at 72%, which is the same as in 2021. And 46% of new independent directors are from underrepresented racial and ethnic groups. Of this group, More than one-quarter of independent directors are black, 10% are Asian, and Hispanic representation set a second straight record at 8%.
Women Reach New Milestone
Female representation has nearly doubled from a decade ago. In 2022, women comprised 32% of board directors, up from 30% last year, and 17% in 2012. One encouraging data point is that all S&P 500 boards now have at least one woman director and 98% have two or more, up from 72% in 2021. Women are also increasing their leadership representation. 14% of independent board chairs and 14% of lead or presiding directors are female.
Directors that are serving on their first outside public board comprise 34% of new appointments. This is down from 35% last year, and continues a trend of bringing in new appointees with new ideas and fresh experience. Of the new directors, three-quarters of them are actively employed. For newly appointed directors with prior board experience, only 31% are actively employed. And directors are also getting younger, with 18% of new appointments under the age of 50. The overall representation of under 50 directors is now at 6%.
The most common background for new directors, at one-third of appointments, are active and retired corporate executives, including division or subsidiary and line or functional leaders. And 23% are active or retired CEOs. More than half are actively employed.
Instead of using term limits, which are in place for non-executive directors at just 7% of S&P 500 boards, 70% have a mandatory retirement age. Of those with term limits, the range tends to be 10 to 20 years. For those companies with a mandatory retirement age, more than half set the age at 75 or older. For independent directors, the average tenure is 7.8 years, with the average age of directors at 63.1 years.
The average total compensation for directors increased by just 3% to $316.091 in 2022. The most significant share percentage of compensation is cash (37%) and stock grants (56%). The average annual retainer also increased by 3% to $136,133. More than three-quarters of companies distribute stock grants to directors on top of the cash retainer.
Other highlights include 93% of boards disclosing racial or ethnic composition, 57% of boards splitting the CEO and Chairman roles, and 47% of boards providing individual director evaluations. For full details, see the report. And if you have questions or need to hire a board director, send us a note.