Compensating co-op directors
USDA study reveals wide range of pay plans
By Bruce J. Reynolds, Economist
USDA Rural Development
bruce.reynolds@usda.gov
Editor’s note: This article is the third in a
three-part series on selecting and compensating
cooperative directors. The first article
was published in the Nov.-Dec. 2003
issue, and the second part in the March-
April 2004 issue. These and other past
issues can be accessed online at: www.rurdev.
usda.gov/rbs/pub/openmag.htm.
ervice on the board of
directors of cooperatives
involves a significant
commitment of time and
mental energy. Some
members who would make excellent
directors may not seek election to the
board because of these demands.
Financial recompense may offset the
reluctance of some members to serve
as directors.
Cooperatives of a similar type, business
volume and geographic location
tend to adopt similar policies as to
method and amount of compensation
for directors. A recent survey identifies
differences in the amounts and terms
under which director compensation is
paid. The survey identified three general
types of financial compensation: (1) permeeting
payment or per diem, (2) annual
stipend or retainer, and (3) reimbursement
of travel expenses. There were 419
responses to financial compensation
questions. Farm supply (205) and grain
(173) cooperatives were the predominant
types of cooperatives that shared
compensation information. Several
large, high-value marketing cooperatives
also shared this information.
Only two of the surveyed cooperatives
indicated that no compensation is
paid to directors. Travel expense is
often negligible for directors of local
cooperatives. Reimbursement is available
in 247 out of 419 survey cooperatives.
Twenty-five cooperatives cover
travel expenses but do not pay any additional
compensation. Survey results for
per-meeting and stipend compensation,
but not travel reimbursement policies,
are summarized below.
Compensation amounts are influenced
by a cooperative’s volume of
sales. Responses are in three sales volume
intervals: $2 million to $26 million;
$27 million to $89 million; $90
million to $8 billion and for all respondents.
The mode (the most frequently
occurring number), median and range
of compensation amounts, as well as
the number of cooperatives in each
sales-volume interval are summarized.
The 27 cooperatives without per-meeting
or stipend compensation are
excluded from the calculations of the
summary statistics.
Policies for directors and members
are established with an eye toward fairness
and comparability with general
practices of other cooperatives. For
this reason, the mode-- which measures
the most frequent or common
value-- is an especially relevant summary
statistic. Furthermore, the
mode count, or number of observations
represented by the mode, shows
the relative predominance of certain
compensation amounts. There are a
few cases of ties for the mode (bimodal
values), and several commonly used
compensation values are almost as frequent
as the mode. In fact, compensation
data are multi-modal in the sense
that there are different strings of identical
per-meeting rates or stipend
amounts which cooperatives adopt.
This multi-modal distribution of
compensation is displayed in stem-and-leaf plots in an on-line report at
the NCR-194 Web site (http://www.
agecon.ksu.edu/accc/ncr194/).
Per-meeting compensation
A per-meeting payment applies for
each day of a meeting’s duration. Most
co-ops reported that their board meetings
usually do not extend beyond one
day. Many cooperatives have variations
in the payment amount for half day or
for evening meetings. A few cooperatives
mentioned that this payment was
only for meetings attended and was
therefore not automatic. Cooperatives
often have monthly board meetings,
but several have more than twelve
meetings per year, and for many co-ops
the number of meetings varies from
year-to-year. Therefore, annual compensation
is variable for cooperatives
with a per-meeting payment policy.
The mode per-meeting rate is
$100 in the three sales groups. There
is a tie at $200 for the mode in the
larges sales class (Table 1). A double
asterisk (**) indicates bimodal values,
reported in a footnote to the table.
Also note that these per-meeting rate
summaries do not include higher
amounts that are often paid to officers
of the board.
The median is $75, as compared to
the mode of $100, which suggests that
per-meeting rates less than the mode
are also popular. In fact, 45 cooperatives
paid $50 and 42 paid $75 permeeting,
as compared to 63 paying
$100. Per-meeting compensation is
generally higher for directors of the 42
cooperatives in the sales range $90
million to $8 billion, as indicated by its
median of $150.
Stipend
The term stipend describes fixed
annual payments as a method of compensation.
Although stipends are often
paid-out monthly, the amount does not
change when greater or fewer meetings
are held in any given year. This
method recognizes the fact that board
meetings are not the only occasions for
a director’s work.
Director compensation with a
stipend or fixed annual payment is less
frequent than per-meeting payments,
with only 69 cooperatives reporting
this method for non-officers of the
board (Table 2). Several cooperatives
pay these annual stipends to their
directors monthly and others make a
single payment. A stipend recognizes
service beyond board meetings, such as
a director’s role in helping to maintain
a cooperative’s positive relations with
members and the public.
The stipend mode value is $1,200,
which is paid by 17 of the responding
cooperatives. The median stipend is
$900. Stipends of less than $1,000 are
paid to directors by 37 out of the 69
cooperatives having a fixed annual
compensation. Note that a $1,200
stipend is equivalent to the annual
compensation of cooperatives with a
per-meeting rate of $100 and monthly
board meetings. However, several
cooperatives with a per-meeting
method only pay for meetings attended,
whereas those cooperatives with an
annual stipend, even if disbursed on a
monthly basis, pay their directors
regardless of meeting attendance.
Compensation for board officers
Compensation is often higher for
officers of the board. Furthermore,
eight cooperatives provide compensation
only to board officers. The 300
cooperatives with a per-meeting payment
include 52 that also pay stipends
to board officers. For the 248 cooperatives
that exclusively compensate with
a per-meeting payment, 79 have a
higher per-meeting rate for the board
chair than for other directors. The
median for the board chair is $100,
which compares to $75 per-meeting
paid to non-officers of the board
(Table 1).
Eighty responding cooperatives pay
stipends to board chairs, which include
11 cases where they are not paid to
non-officer directors. In another 36
cases, chair stipends are higher than
the amounts paid to non-officer directors.
The median stipend for the board
chair is $1,000, compared to $900 for
non-officer directors.
Board secretaries are paid higher
per-meeting rates than non-officer
directors in 52 cases, with a median of
$95 as compared to $75. In addition,
board secretaries receive per-meeting
payments in 10 cases when either no
such payments are made, or stipends
are paid, to non-officer directors. In
fact, eight of those 10 have a per-meeting
payment exclusively for the board
secretary.
Stipends for board secretaries are
higher than for non-officer directors in
28 cases. In addition, there are eightcases where stipends are paid to board
secretaries but not to non-officer
directors. The median secretary
stipend is $930, compared to $900 for
non-officer directors.
Combined compensation policy
Combined or mixed compensation,
i.e., paying both a per-meeting amount
and a stipend, was reported by only 15
cooperatives for all members of the
board, while 88 cooperatives apply this
policy exclusively to officers. These
variations for officers primarily apply
to the board chair and secretary.
Results for cooperatives with a mixed
compensation policy are summarized
in a more detailed report, available on
the NCR-194 web page.
A combined compensation policy is
more exacting than necessary for many
cooperatives. Nevertheless, an examination
of the 88 cooperatives with a
combined policy for officers reveals the
different economic purposes of permeeting
payments vs. stipends that are
less evident when a single method of
compensation is used.
When cooperatives provide higher
compensation for officers, the chair is
usually the highest compensated position
on the board. Yet, cooperatives
with a combined policy more often use
a stipend to pay higher compensation
to the board chair than a higher permeeting
payment. In contrast, a higher
per-meeting rate is more frequently
used to increase the compensation for
board secretaries. This difference may
reflect the fact that the added burden
of secretary work involves board meetings,
whereas the chair not only has
more work in running the meetings,
but may also be involved in a lot of
member relations and public affairs
work. These kinds of services are often
difficult to track in terms of time spent,
so are more accurately compensated
with a stipend than a per-meeting rate.
Compensating non-member directors
Farmer cooperatives usually have
members exclusively as their directors,
as indicated by the survey results
showing only 18 out of 437 with non-members
on the board. Three of these
18 cooperatives were incorporated in
Virginia, where state statutes require
farmer cooperatives-- under certain
conditions-- to appoint a public
director. As discussed in the second
article of this series, several cooperatives
were considering revisions in
their bylaws to allow appointment, if
not election, of a non-member to the
board. If cooperatives increasingly
decide to place non-members on their
boards, especially if such non-members
are professionals or business leaders,
the issue of paying higher compensation
will arise more often.
Only two of the responding cooperatives
with non-members on their
boards reported compensation above
what is paid to member directors.
These cooperatives compete in highvalue
commodity industries and their
non-member directors are selected for
the purpose of providing business
expertise that would unlikely be available
from a board that included only
members. Each cooperative faces its
own set of challenges, and director
selection and compensation policies
must take such individual circumstances
into account.
Although it is not unusual for many
privately owned and publicly traded
companies to have the flexibility to
compensate directors differently, especially
high-profile public figures, cooperatives
operate with more constraining
business objectives. In cooperatives, the
emphasis on fair and equitable treatment
gives some salience to the idea of
compensating member and non-member
board members the same.
Board excellence
Policies for selecting, electing and
financially compensating cooperative
directors are the topics of this threepart
series of articles. These topics all
relate to the goal in cooperative governance
of getting the best directors possible
to serve on the board.
The payments to directors--
whether per-meeting, stipends or a
combination-- are intended to be a
financial compensation for the extra
time and effort they give to their cooperatives.
In many non-cooperative
businesses, directors often seem to
receive excessive compensation, as frequently
reported in the news media.
For cooperatives, the challenge is far
more to ensure that director payments
are adequate, rather than one of keeping
compensation in-check.
Some survey respondents commented
that even though they have policies
for director candidate selection and
encourage competition for board elections,
a large proportion of members
are unwilling to consider serving on
the board. Such member reluctance
raises a question about the adequacy of
director compensation.
The challenges of electing the best
directors possible involve diligence in
reviewing and updating governance
policies, attending conferences to discuss
best practices and participating in
surveys that provide an opportunity for
the cooperative community to share
information.
