Reasonable compensation for a director of a private, limited company?
September 27, 2022 8:37 AM   Subscribe

This is a family based private limited company and from what I can tell the company is sitting on land in a small city, selling off parcels for development as offers are made.

I am the recipient of shares since the death of a parent and I never paid much attention to things when my parent was alive. I do have the strong impression that some of the siblings (grandchildren of one of the initial founders) felt that the concern is not managed as they'd like and they were not getting sufficient information. My own siblings and I are trying to understand things better, and we did ask about the annual compensation paid to the 5 directors ($20,000 each). I'm of a mind to continue not caring much, I'd have to fly across a lot of country to meet with any of the other directors and this is wealth I never earned.. From what I can see the assets will be liquidated sometime in the next several to 10 years?

If you have any knowledge of this world, feel free to chime in with any information you think is potentially useful or relevant.
posted by elkevelvet to Work & Money (4 answers total)
Since you mentioned that it's a limited private company, and depending on the value of the shares and all of that, this might be something you and your siblings want to run by a commercial lawyer to determine what rights you have and what information you're entitled to as shareholders, and start from there.

Shareholder rights for a private, limited company are going to vary a bit depending on where the company is registered (i.e., which province it's registered in since they all have slightly different company/corporations acts, and there's a different set of federal laws that apply if it's registered federally).

It's normal for directors of a private or public for-profit company to be paid something. But what the right or reasonable level of director compensation is in this case is its own matter.

It's easier to compare director compensation between publicly-traded companies (whether they're limited companies or corporations) than for private ones, since the former need to be publicly disclosed (basically, issuing public shares that trade on a stock exchange carry a whole host of public disclosure requirements that don't exist for companies with privately-held shares). So benchmarking director compensation here (i.e., is that $20k close to what a company of the same size and type to yours pays its directors?) is going to be a little trickier.
posted by mandolin conspiracy at 9:19 AM on September 27, 2022 [1 favorite]

It's on the low end. Average for a small, private, family-controlled board would be around $30,000 for base retainer, around $2K per meeting, and more for leadership roles (committee chair, board chair).
posted by NotMyselfRightNow at 9:20 AM on September 27, 2022 [1 favorite]

I'd say to some degree it depends on the value of the property being administered. There is always a risk of waste and what they call "oppression" in closely-held companies, and it's always better to pay attention to how other people are handling your money (for want someone keeping an eye out for kickbacks from developers!). But if the property value is in the tens of millions or more, it's probably not unreasonable.

If enough siblings are concerned and the value of the property is enough, they could pay an attorney to review the company's articles of incorporation, by-laws, etc. to make sure everyone understands their position and the company is operating according to those documents. But that would really be more informational, looking for obvious red flags.
posted by praemunire at 11:19 AM on September 27, 2022 [1 favorite]

Response by poster: I'm leaving this open in case additional information shows up, but these responses are fantastic, thank you for sharing your thoughts.

I think we're a way off from retaining legal counsel, it's good to know the $20,000 fee is well within range re: compensation, and my group of siblings is definitely on their radar for taking interest in things. An uncle is among the 5 directors and I've never met him, if that puts things in perspective. Anyhow, this is all new to me and the comments are much appreciated.
posted by elkevelvet at 11:56 AM on September 27, 2022

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