Forget Fantasy Football - time for the Fantasy Boardroom game

I’ve gone off Fantasy Football.? Having propped up my family’s Fantasy Football League for the opening weeks of the season, beaten by relations who pick their team on the basis of silly names (in one humiliating case based on a foraging theme) it’s time to focus on something more useful: a Fantasy Boardroom game.? Not just so I can do better than in the footballing equivalent but because it might generate some relevant insights for the composition of boardrooms in the real world.

For those of you sensible enough not to follow Fantasy Football, or its equivalent in other sports, it’s an online game where you select a composite team of players from Premiership football clubs and earn points when they score, provide an assist or keep a clean sheet in each match.? Whilst your real football team might win or lose, you can console yourself (or despair in my case) with how your fantasy team is doing.?

A worldwide Fantasy Boardroom game (which someone has surely invented already) might be a better use of my time.? The idea would be to have a fixed amount of money, let’s say $25MM, to choose a board of twelve selecting from board members of global listed companies. The cost of each person being their actual compensation as published in annual reports.? You pick a CEO, CFO, COO, Chairperson and a Deputy Chair, Senior Independent Director or President plus seven other non-executive directors (NEDs). You can only pick three from the same company, country or industry.? Points earned on how much the share price of the company increases quarter to quarter.

Now at this point you may be concerned that I’ve thought far too much about this (true) and that $25MM is too much money, given it gives more than $2MM for the compensation of each board member.? But remember you’re choosing from directors of global listed companies.? Whilst UK FTSE 100 companies might pay CEOs a median of ￡900k base salary and total compensation in the ￡3-4MM range last year, according to Mercer’s 2022 UK Board Remuneration Handbook, in the US S&P 500 CEOs earned on average ~$14MM.? And that’s median not highest paid.? So, select a couple of super-star executive directors and there will not be much money left for anyone else.?

As in the sports equivalent, therefore, selecting the optimal fantasy boardroom ‘team’ will be about balance; picking one or two highly paid executives alongside a larger group of non-executives at a lower compensation level.? The real world reflects this.? Mercer’s report highlights the median non-executive director fee last year in the UK – excluding additional fees for sub-committee roles - was ￡74,000 or 8% of the median CEO’s salary.? In the US, Spencer Stuart estimated annual compensation for S&P 500 non-executives is $316k or 2% of the executive average.?

None of which is a surprise.? In football people pay more for strikers and in corporate life for executives and the results they deliver.? Non-executives play a crucial but different role, not directly linked to company or individual results, and their compensation reflects that with a limited range in compensation.? Average base fees for NEDs of FTSE 100 companies spanned only ￡64k to ￡80k last year.? Outside of Board Chair roles, it seems the non-executive community is largely paid the same base fees irrespective of calibre, experience or personal performance, with the only differentiation coming from additional sub-committee roles.?

In the Fantasy boardroom however you might question whether this is the optimal approach and wonder if there is sufficient differentiation in non-executive compensation based on their skills, talents and personal performance?? After all, you expect to pay more for top talent in all its forms, executive and non-executive, if it helps the team ‘win’ over the long-term.

You may also ask if this is simply a way to pay NEDs more?? Not necessarily, although given the importance of the role and potential contribution they can make, would that necessarily be a bad thing?? The formative Cadbury report of 1992 on Corporate Governance – the first of its type in the world –stated “Every public company should be headed by an effective board which can both lead and control the business… All directors are equally responsible in law for the board’s actions and decisions”.? Simple statements highlighting all directors carry a heavy responsibility.? Non-Executive directors can be sued, they can be fined, their reputations are at risk and their responsibilities are considerable, something that has been reinforced in many countries in the wake of corporate scandals.?

So given NEDs are key, and as for Executive directors, we can assume a range of calibre and performance, might it be worth considering paying NEDs differentially outside of additional fees for sub-committee roles?? There are arguments against this, not least what this does to the team dynamic and how to assess the performance of NEDs fairly (both individually and as part of the team) but the UK corporate governance code states “There should be a formal and rigorous annual evaluation of the performance of the board, its committees, the chair and individual directors” so at one level this is an existing requirement.?

Perhaps there is an index of NED performance to be developed that drives Fantasy Boardroom valuations and…I know I’m thinking too much about this, so I’ll stop.? But the stark differential with executive pay and homogeneity of non-exec remuneration, suggests the topic may be worth reflecting on.? In the thought experiment that is the Fantasy Boardroom at least.

Back in the real world, I just need someone much more talented than me to come up with the mechanics of how all this will work, trademark it, launch it successfully to the public and enjoy the rewards.? I’ll probably need some good non-executives to oversee, guide and challenge me along the way.? In the meantime, I’ll continue to forget about Fantasy Football…at least until my recent set of transfers starts generating points and I climb the league table.

?David Gillespie