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Governance Insights

Governance Excellence: Insights on Board Compensation and Ownership Culture

Nth Round

I

May 28, 2024

Today, we're building a strong ownership culture and benchmarking private company board compensation.

But first…

Blackstone to Expand Equity Ownership to Workers in Future Deals

Good news for equity advocates!

Blackstone, the world's largest private equity firm, is expanding ownership opportunities to workers in the companies they acquire.

This initiative, described in an investor memo by private equity head Joe Baratta, aims to “provide broad-based worker eligibility for equity-linked bonuses at our new

large-scale, US private equity control investments.”

This move aligns with efforts by other private equity firms like KKR to enhance worker morale and retention. Blackstone believes this strategy will also attract top talent and align the interests of the firm with its portfolio company employees.

Building a Culture of Ownership

Creating and communicating a culture of ownership is essential for private enterprises and family businesses aiming for continued growth and a lasting legacy.

This culture impacts all shareholders, from employees to the next generation of family members.

While there’s no one-size-fits-all roadmap to building a culture of ownership—and perhaps there shouldn’t be—your approach should authentically reflect your company.

Here are some common strategies to consider:

Aligning Interests: A robust ownership culture aligns the interests of all stakeholders, enhancing performance and resilience. Committed stakeholders drive innovation, efficiency, and proactive problem-solving.

Transparent Communication: Sharing the company’s performance, goals, and challenges fosters trust and engagement. It’s crucial to communicate the family’s vision and values, ensuring alignment with long-term objectives.

Leadership's Role: Leaders must model ownership principles, demonstrating accountability and deep commitment. Their actions set the tone, influencing how others embrace the ownership culture.

NextGen Involvement: Involving NextGen leaders is crucial for continuity. By fostering their sense of ownership, you ensure they are prepared to lead and motivated to drive the business forward.

A well-communicated culture of ownership builds a cohesive, motivated, and forward-thinking community of stakeholders. This foundation ensures that your values and vision endure, securing future growth and continuity.

Weekly Board Topic: Benchmarking Private Company Board Compensation and Governance

Compensating board members of privately held and family-owned companies is an important piece for effective governance and oversight. Yet, determining what that compensation is exactly has been challenging for these businesses to access and better understand.

Thanks to a consortium of industry experts, including Compensation Advisory Partners (CAP), Family Business Magazine, and Private Company Director Magazine, there is now a bit more transparency into the data.

To download the Private Company Board Compensation and Governance Survey in its entirety visit the CAP website (survey results collected in 2022).

Here are a few highlights as provided by Harvard Law:

Compensation on the Rise: Board compensation is increasing, with a median annual retainer of $30,000, up from $28,000 in 2020. This reflects the growing importance of strong governance in private companies.

Focus on Retainers: Cash retainers are the most common form of compensation (71%), followed by travel reimbursements (53%) and meeting fees (49%).

Board Size and Composition: Private company boards typically have 5-8 directors, with a roughly even split between inside directors (family/shareholders) and independent directors.

Limited Use of Long-Term Incentives: Only 26% of companies offer long-term incentives like stock options or restricted stock. However, CAP expects this to rise, particularly for larger companies, as a means to attract and retain board talent.

The increasing focus on benchmarking compensation and governance practices, as highlighted in this survey, reflects a growing recognition of the importance of strong boards in driving private company success. However, the findings also emphasize the need for tailored approaches that consider each company's unique circumstances and governance needs.

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Happy reading!