Some experts argue that a corporation’s board of directors should be paid only with stock options. What do you think?
Exempt or Non-Exempt
Remind us of your ideal future career. In that role, would you prefer to be compensated as an exempt employee or a non-exempt employee? Why or why not?
Minimum Wage
What are your thoughts on the minimum wage? Should the federal minimum wage be increased? If it were solely up to you, what would you increase the minimum wage to, and why?
Pay Secrecy
Do you want to know how much your coworkers earn? How eager are you to tell them how much you earn? Is pay secrecy a valid management tool to prevent jealousy and morale problems, or is it an unfair practice that hides discrimination and ineffective compensation policies? Who is best served or protected by the practice of pay secrecy?
Sample Answer
Board of Directors Compensation: Stock Options Only?
Compensating a corporation's board of directors (BoD) only with stock options has strong arguments both for and against it.
Arguments For (Alignment and Motivation):
Shareholder Alignment: This is the primary argument. Stock options directly tie the directors' wealth to the long-term share price performance. Since the board's primary duty is to act in the best interest of the shareholders, this compensation structure ensures their motivation is perfectly aligned with the owners of the company.
Long-Term Focus: Options are typically granted with a vesting period (often several years). This encourages directors to focus on sustainable growth and strategy rather than short-term gains, as they only profit if the stock value increases over time.
Skin in the Game: It ensures directors genuinely have "skin in the game," motivating them to monitor management and approve strategies rigorously.
Arguments Against (Risk and Independence):
Risk Overload: Directors already bear significant legal and fiduciary risk. Relying solely on options concentrates their personal financial risk in one asset, which can be imprudent.
Loss of Objectivity: Excessive reliance on stock value may lead to short-sighted decision-making or, worse, an incentive to manipulate financial reporting to boost the stock price before vesting. This undermines the board's critical oversight function.
Recruitment Challenges: Highly qualified and experienced directors may be unwilling to accept a position that offers no reliable cash compensation, especially in private or non-publicly traded companies. Cash retainers cover the time, travel, and non-stock-related oversight responsibilities.
My Take:
While the goal of alignment is admirable, compensating the board solely with stock options is not ideal. A diversified compensation mix is better. The most effective structure is usually a mix of:
Cash Retainer: To compensate for time and legal risk, and ensure financial independence from the stock's daily fluctuations.
Stock/Restricted Stock Units (RSUs): To ensure a permanent ownership stake.
Stock Options (Long-Term): To motivate future growth.
This hybrid approach achieves alignment without compromising the board's objectivity and independence, which are crucial for good corporate governance.