It may be nice to be your own boss, but setting your own compensation – and, at least arguably, giving yourself excessive pay – may get you in trouble. A number of boards of directors have found that out, as courts have given them judicial whacks upside the head for paying themselves too much. Not surprisingly, shareholders have gotten on the bandwagon as well.
Executive compensation – at least for public companies – has to be scrutinized and blessed by independent directors and, since the advent of Say on Pay, approved by shareholders (albeit on a non-binding basis). In contrast, directors have long set their own pay, with little or no scrutiny and no requirement for independent review, much less approval. (Director plans generally must get shareholder approval if they provide for equity grants, but neither the overall director compensation program nor specific awards have to be approved.)