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ENTREPRENEURIAL BOARDS
TECHNOLOGYBOARDSSURVEY
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Material in this book is or educational purposes only.
For legal advice, please consult your lawyer.
The views expressed by individuals (or companies)in this book do not necessarily reect
the views shared by the companies they reer to.
1050 Winter Street, Suite 1000, Waltham, MA 02451General: 781-416-4003 eFax: 781-207-0553
www.vell.comEditors: Jennier Leclaire and Bill Perry
Cover Design and Layout: Ozzie Ciliberti, Vision Design & Advertising Inc.Statistical Analysis: David Maber, Harvard Business School
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Copyright, 2007 by Vell & Associates Inc. All rights reserved. Printed in the United States o America.No part o this publication may be reproduced or distributed in any orm or by any means, or stored in adatabase or retrieval system, except as permitted under sections 107 or 108 o the United States Copyright Act,
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Published by Vell & Associates Inc.For corrections, company/title updates, comments or any other inquiries,
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ENTREPRENEURIALBOARDS COMPOSITION
& COMPENSATION SURVEYThe Canada Report
Findings rom the Vell & Associates
Published byVell & Associates Inc.
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Dora Vell, PresidentVell & Associates Inc.
As president o Vell & Associates, Inc., Dora Vell hascreated remarkable programs or recruiting CEOs,C level executives and boards o directors. She hasalso crated global executive and governancerecruitment strategies or companies ranging romstart-ups to the Fortune 50.
As an expert in executive search or the technologyindustry, she relies on a background that blendsboth management and high-tech experience.
Ms. Vell has held posts as an sales and engineering executive and authored
seven sotware patents. She has also managed multi-million-dollarsotware businesses or the likes o IBM. A wide range o companies haverecruited her as a board member. And Ms. Vell spent nearly a decade as apartner in the technology practice o an internationally known executivesearch irm.
Premier business publications, including The Wall Street Journal andFortune Small Business regularly quote Ms. Vell on the topic o executive
recruitmentIndustry trade groups, venture capitalists and blue chip companies otencall on Ms. Vell to share her expertise as a speaker at CEO roundtables andconerences.
Contact Ms. Vell at [email protected].
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Boston-based Vell & Associates, a premier retained executive searchfrm, specializes in fnding high-level, top-ight technology executives.
Each o the frms proessionals bring a distinctive knowledge o andexperience in the technology industry. Vell & Associates credentials,
experience, and unrelenting ocus on satisaction and executionempowers the frm to connect exceptional leaders, with proven trackrecords, to the best companies.
Vell & Associates mission is to build the best leadership teams
in the world in the technology and IT services marketplace.Whether large or small, private or public,
global or local, every company requires an effective
leadership team at the top.
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List o Illustrations ........................................................................................................2
Forward .........................................................................................................................3
Introduction ..................................................................................................................4
Executive Summary .....................................................................................................5Canadian Board Survey Results ...................................................................................8
Board Composition .....................................................................................................8
Board Size ..................................................................................................................11
Proportion o Boards with Empty Seats .....................................................................12
Board Member Meeting Fee .......................................................................................13
Committee Meeting Fee .............................................................................................. 14Board Member Equity and Cash Remuneration Splits ............................................. 15
Board Member Equity Remuneration ........................................................................ 17
Conclusion ....................................................................................................................22
Appendix A The Survey Questions ...........................................................................25
Appendix B About the Survey ....................................................................................30
Demographic Characteristics o Sample Firms .........................................................31
Global Geographic Concentration .............................................................................31
U.S. State Geographic Concentration ........................................................................32
Industry Concentration ..............................................................................................33
Years in Operation ......................................................................................................34
Revenue o Sample Firms ........................................................................................... 34
Entrepreneurial Boards Composition Survey
CONTENTS
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List o Illustrations
Figure 1.1: Board Composition o US Companies ......................................................10
Figure 1.2: Board Composition o Canadian Companies ...........................................10
Figure 2.1: Board Size: Canadian vs. US Companies ..................................................11
Figure 3.1: Proportion o Empty Board Seats: Canadian vs. US Companies .............12
Figure 4.1: Board Member Meeting Fees: Canadian vs. US Companies .....................13
Figure 5.1: Committed Meeting Fees: Canadian vs. US Companies ...........................14
Figure 6.1: Board Member Remuneration: Canadian vs. US Companies ..................16
Figure 7.1: Board Member Equity Remuneration: Canadian vs. US Companies .......18
Figure 8.1: Equity Retainer and Equity Upon Joining Splits:
Canadian vs. US Companies .....................................................................20
Figure 8.2: Percentages in Equity Compensation .......................................................21
Figure B1: Global Geographic Concentration .............................................................31
Figure B2: State Geographic Concentration ................................................................32
Figure B3: Canadian Province Geographic Concentration ........................................32
Figure B4: Industry Concentration ..............................................................................33
Figure B5: Number o Years Since First Incorporated .................................................34
Figure B1: Size (Revenues) ..........................................................................................34
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FORWARD
Whether your company is already listed on The Proft 100, a ranking o Canadas astest-
growing companies, or you hope to get there, boards o directors play a vital role. But i
boards are vital, getting the right board is even more so. Recruiting and retaining board
members can be challenging, but best practices make the task less daunting, and oer
guidelines that protect both the company and its board candidates.
The Vell Entrepreneurial Boards Composition and Compensation Survey: The Canada
Report studies the board composition o Canadian companies, including the board
size, the proportion o boards with empty seats, and compensation to fnd best practices
within small Canadian companies. We discovered how Canadian companies are pushing
the envelope in areas o equity remuneration and learned how the composition and
compensation o boards vary between the U.S. and Canada.
We also compared the data, point by point, to U.S. companies to determine how the boards
o Canadian companies are against their American counterparts in various categories.
Some o the results are surprising, but the fndings rom the Entrepreneurial Composition
and Compensation Boards Survey: The Canada Report confrm that most companies in
the nation are on par i not leading the pack with U.S. corporations in critical areas
like board characteristics and compensation.
Thank you or your interest in this report. We invite your comments and suggestions oruture editions o our survey o entrepreneurial boards o directors.
Dora VellVell & Associates, Inc.
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INTRODUCTION
You may be amiliar with Canadian Business magazines exclusive annual ranking o the
countrys best and worst corporate boards. O course, as the magazine editors admit, one
can only speculate on what goes on behind the closed doors o Canadas boardrooms. But
there are more clues coming orth in the orm o compensation practices.
While the Canadian Business ranking oers marks or the quantity and quality o executive
compensation inormation boards disclose, the Entrepreneurial Boards Composition and
Compensation Survey: The Canada Report builds on past studies to oer new insightsinto the boards o small, young companies rom a dierent perspective: diversity, size,
vacancies and remuneration strategies.
Richard Leblanc, an assistant proessor o governance, law and ethics at York University
who has been studying boards or more than a decade, told Canadian Business magazine
that companies have spent a lot o time, energy and money putting in place board
structures that are supposed to lead to better corporate governance. But the evidence shows
that those structures alone do not create better boards. We have a lot o boards in Canada
that look good on paper but are still not adding a lot o value to their respective company,
he said. Companies that want a really good and eective board have to go beyond the
structural guidelines.
Leblanc is correct. The Entrepreneurial Boards Composition and Compensation Survey:
The Canada Report hopes to take Canadian companies one step closer to understanding
what makes a really good and eective board by oering insights into how companies
are organizing their boards and compensating their directors. The study goes beyond
corporate governance best practices. The study looks at how small Canadian companies
are truly operating, and determines where there may be room or improvement.
Part o a Canadian boards ability to help a company compete in a global marketplace
depends on a board o directors that is not only competent, but orward-thinking. The
Entrepreneurial Boards Composition and Compensation Survey: The Canada Report
seeks to shed light on the state o boards in the nation. By understanding and employingbest practices or board size, diversity and compensation, among other characteristics,
Canadian companies can continue to gain ground in international business.
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EXECUTIVE SUMMARY
Canada boasts one o the most technologically advanced economies in the world, with
high-tech exports leading the way. Made in Canada is a competitive label and the
nations strong historic ties to Europe makes or healthy chemical, machinery, transport
equipment, computer electronics and mining exports. Canada also has unique access to
Asia-Pacifc markets through its geographic location, immigration links and actions or
reducing trade barriers. Canada is truly a global economy and its attracting companies
around the world to do business in and with Canada. Since 1996, oreign direct investmentin Canada grew over 128 percent to $415.6 billion at the end o 2005.
Despite Canadas many advantages, companies still need strong boards to guide them. In
act, the ocus on boards o directors in all sectors has never been stronger, yet there is little
research to help companies develop best practices or attracting, retaining, rewarding and
drawing the most value rom their boards. Many boards hold tremendous power within
the corporation to help steer it in a proftable direction through strategy and executive
recruiting approvals, yet there remains mysteries surrounding the appropriate intervals omeetings, compensation, and diversity o the boards members.
The Entrepreneurial Boards Composition and Compensation Survey: The Canada
Report was designed to identiy trends in boards o directors. We surveyed 150 CEOs,
venture capitalists, vice presidents o human resources and board directors rom various
industries more than 18 in total with a special ocus on small sotware and technology
companies. A majority o responding companies had average annual revenues o less
than US$10 million and had been in operation between fve years and 10 years. Most are
privately held.
Our goal with this report is to compare and contrast the practices o Canadian companies
and U.S. companies to identiy national trends, as well as areas where Canadas technology
companies should consider making adjustments to their boards o directors in the areas o
size, composition and compensation strategies.
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Recommendations:Vell & Associates suggests the ollowing approaches or entrepreneurial irms:
1.Improve Board Composition: Consider having more independent boardmembers to introduce an external perspective to the business.
a. Add angel investors, especially those who have had success as
entrepreneurs.
b. Consider adding current or retired executives rom your customer
group, supplier group or key channel partners. They will add a unique
perspective to your company and help you in a strategic way.
c. Maintain a diversity o skill sets and industry experience on your board.
This oers you a well-rounded perspective on the opportunities and
challenges your company aces.
d. Ensure that the skill sets on your board match your company strategy
and complement the skill sets on the management team and the board.
e. Pay close attention to the candidates overall industry experience and
credentials.2. Fill empty seats on the board. 27% o board seats are empty. This presents a
unique opportunity to ill these seats with strategic talent. Empty board seats
devalue overall production o the board and rob your company o the chance to
draw rom the wealth o experience directors can oer.
3. Seek to grow your board to about six to eight members. Too many members
can breed conusion; too ew can leave important perspectives buried.
4. Utilize the Board: Direct boards, especially in ast-paced industries, such assotware and telecommunications; hold board meetings more requently than
companies in traditional industries.
5. Aggressively recruit senior board members for the strategy you are
pursuing. Deine your ideal board candidate and recruit them. Experienced
board directors will oten agree to serve or stock options, rather than large
cash-based compensation packages.
6. Align Incentives at the Board Level. Make equity compensation part o thepackage in order to attract and retain the interest o top-level executives. Only
50% o our survey respondents oer stock options/RSUs or some other type o
equity compensation.
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CANADIAN BOARD SURVEY RESULTS
Board Composition
The unctional composition o Canadian and U.S. boards is markedly dierent in some
areas and similar in others. Looking at the medians, 10th and 90th percentiles, oers
additional insight into the characteristics and dierences.
Independent outsiders are more prevalent at the median in the Canada versus United
States. (26% in U.S. and 32-33% in the Canada. The numbers, while slightly better in
Canada, need to be improved in both countries.). This is in spite o the act that US
companies have more talent close at hand and more tight relationships within the
technical community. As entrepreneurs are on their second, third and ourth start-ups,
an ecosystem develops and can beneft new generations o frst-time entrepreneurs. It is
our observation that this ecosystem is still developing in Canada. Our recommendation
is to utilize our neighbors to the south to increase the number o independents on the
board and to have a view on the US market.
Consultants, suppliers and customers are not present in our survey sample in Canada or
the U.S. This is perhaps due to the Sarbanes Oxley requirements or public companies,
but we strongly believe that it may not be a requirement or a small private company.
A customers perspective or a key suppliers perspective may be absolutely essential to
helping the company cross the chasm. We believe that a customer, supplier or industry
luminary/consultant may be once removed as a customer: or example a person whohas been in the industry but has recently retired or taken a role in another industry. The
strategic perspective they can provide is invaluable to the entrepreneurial venture.
The proportion o investors is notably more present in Canadian companies, than in U.S.
companies. They are similar at the median, but the 90th percentile is 10 points higher
in the U.S. sample. This is interesting as there may be more independent investors in
U.S. ecosystems, such as entrepreneurs who are investing as angels, or independents in
a variety o companies, ater having cashed out rom their earlier ventures.
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Venture capitalists at the median are equally represented in Canadian and U.S.
companies in our sample. However, there are signifcantly more venture capitalists at
the 90th percentile in U.S. companies. Perhaps, this is because the venture capitalindustry and numbers are larger in the United States.
Attorneys are marginally more prevalent in U.S. companies. We would have expected
a dierent trend as Canadian companies need to ocus internationally sooner than
U.S. companies and As Canadian entrepreneurial concerns take U.S., or international,
rounds o fnancing and employees, a variety o legal cross-border issues arise. Attorneys
are not represented at the median but are more visible in the 90th percentile in U.S.
companies boards.
Corporate ofcers are more prevalent in Canadian companies at the median. There
is more variability in the presence o corporate ofcers in U.S. companies. At the 90th
percentile, however over 40% o a Canadian companys board is comprised o company
ofcers (versus 50% in the United States).
A Korn Ferry study on boards states that the ideal number o insiders / outsiders or a
Fortune 1000 board is two insiders, eight outsiders.
The Silicon Valley 100 report indicates that 81% o board members in that sample
are independents versus 75% in the same sample in 2003. This presents a radically
dierent picture than at the entrepreneurial board level. We would say that while small
companies have more insiders, a trend toward more independents would be benefcial.
Both Canadian and U.S. entrepreneurial companies would beneft rom adjusting their
ocus to a more independently oriented corporate governance approach. Canadian
companies in particular are still too internally driven. Canadians have a chance to gain
competitive advantage by adding strategic board members, such as those representing
independents, customers and suppliers (whether currently active or retired). Canadian
companies have the additional challenge o addressing an international market sooner
than their U.S. counterparts, and U.S. board members would be a tremendous asset to
them.
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Figure 1.1: Board Composition of U.S. Companies: Spread in Representation
Independent
Consultant
Supplier
Customer
Investor
VC
Attorney
Ofcer
KEY:
RELATIONSHIP
Denotes the median
representation, among
all boards in the sample
0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 0.50 0.55 0.60 0.65 0.70 0.75 0.80
Figure 1.2: Board Composition of Canadian Companies: Spread in Representation
Independent
Consultant
Supplier
Customer
Investor
VC
Attorney
Ofcer
0.00 0.05
KEY:
RELATIONSHIP
Denotes the median
representation, among
all boards in the sample
0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 0.50 0.55 0.60 0.65 0.70 0.75 0.80
Proportion of Board that has given relationship with the company(Bottom of Bar = 10th percentile; Top of Bar = 90th Percentile)
Proportion of Board that has given relationship with the company(Bottom of Bar = 10th percentile; Top of Bar = 90th Percentile)
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Board Size
The size o boards varies signifcantly between Canadian and U.S. companies represented in
the Entrepreneurial Boards Composition and Compensation Survey: The Canada Report.
(See Figure 2.1.) Canadian corporations report between fve and eight board directorsrs,
while U.S. companies report between three and nine board directors. The median or
companies in both nations, however, is six. The results were based on a revenue-matched
sample o Canadian and U.S. corporations.
The 2006 Silicon Valley Board Index (SV100) survey rom Spencer Stuart notes that 48%o the top 100 companies in the valley have between fve to seven board members and
36% have between eight and nine board members. Only 16% have 10-11 board members
and none have more. By contrast, the S&P 500 40% have 10-11 board members and
26% 12-14. Also, in the smallest o the SV100 index (companies under $250m) have an
average o 5-7 board members.
Small entrepreneurial companies need to move ast and need smaller boards with plentyo high powered strategic insights.
Figure 2.1: Board Size Canadian vs. U.S. Companies
U.S.
Canada
1 2
KEY:
Country
Denotes the median
board size among all
boards in sample
3 4 5 6 7 8 9 10 11 12 13 14 15 16
Based on a revenue-matched sample of Canadian and U.S. corporations
Size of Board(Bottom of Bar = 10th percentile; Top of Bar = 90th Percentile)
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Proportion o Boards with Empty Seats
When it comes to the proportion o empty seats on the boards o directors, U.S. frms report
slightly ewer empty seats than Canadian companies. (See Figure 3.1.) Specifcally, about
25 percent o U.S. corporations report empty seats on the board, whereas nearly 27 percent
o Canadian corporations report empty board seats. These fgures are based on a revenue-
matched sample o Canadian and U.S. companies.
As the Silicon Valley study indicates, the size o valley based companies is getting larger in
a post-SOX arena. Perhaps this trend will aect entrepreneurial boards in the uture andthis might aect the number o open seats.
Figure 3.1: Proportion of Boards with Empty Seats Canadian vs. U.S. Companies
20% 21% 22% 23% 24% 25% 26% 27% 28% 29% 30% 31% 32% 33%
Canada U.S.
Based on a revenue-matched sample of Canadian and U.S. corporations
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Board Member Meeting Fee
The median board member meeting ees o all companies surveyed in the
Entrepreneurial Boards Composition and Compensation Survey: The Canada Report
range was zero. (See Figure 4.1.) We can assume, then, that board member meeting
ees are rare, however some companies rom both Canada and the U.S. reported
compensating board members as much as $1,000 per meeting. The results were based
on a revenue-matched sample o Canadian and U.S. corporations.
The board meeting ee in the SV100 survey was $2,056 on average and $2,600 orcompanies under $250 million in annual revenue. 42% o the companies in the
Silicon Valley survey paid board meeting ees.
This is not surprising as entrepreneurial companies are oten short on cash and
would avoid paying additional ees to board members. Also, given the small number
o independents, there is no need to pay cash to existing investors, venture capitalists
or ofcers.
Figure 4.1: Board Member Meeting Fee Canada vs. U.S.
U.S.
Canada
0 200 400 600 800 1000 1200 1400 1600
KEY:
Country
Denotes the median
fee among all boards
in sample
Meeting Fee (U.S. $)(Bottom of Bar = 10th percentile; Top of Bar = 90th Percentile)
Based on a revenue-matched sample of Canadian and U.S. corporations
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Board Member Equity and CashRemuneration Split
Board member remuneration varied signifcantly between Canadian and U.S. companies.
The Entrepreneurial Boards Composition and Compensation Survey: The Canada Report
divided remuneration into our basic categories: Cash Only; Cash and Equity; Equity Only;
No Cash, No Equity. (See Figure 6.1)
Canadian companies are more generous to their board members than their U.S.
counterparts. The cash-only compensation is the only similar number between our
Canadian and U.S. samples. Cash-only remuneration is given in 11% o Canadian
companies and 13% o U.S. companies.
45% o Canadian companies oer both cash and equity versus 24% o US companies. At
the other end o the spectrum, 14% o Canadian companies and 24% o US companies payno compensation to board members. Overall, Canadian companies are more generous to
their board members.
It is unclear why this is. Perhaps it is due to the size o the Canadian market and the
perception o the difculty o obtaining outstanding board members. The Canadian
entrepreneurial ecosystem is still orming and the number o successul entrepreneurs
that have been through several companies is not as large. Also, many other independents
need to be brought up rom the United States, and perhaps there is a perception that morecompensation needs to be given or this to be realized.
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Figure 6.1: : Board Member Remuneration - Canadian vs. U.S. Companies
Cash and Equity45%
Cash Only11%
No Cash No Equity14%
Equity Only30%
Equity Only39%
No CashNo Equity24%
Cash Only13%
Cash and Equity24%
Canadian Companies
U.S. Companies
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Board Member Equity Remuneration
Drilling down deeper into the data reveals specifc strategies or equity awards. There
are our categories: No Equity Retainer & No Equity Upon Joining, No Equity Retailer
But Equity Upon Joining, Equity Retainer But No Equity Upon Joining and Equity
Retainer & Equity Upon Joining. (See Figure 7.1) The dierences between Canadian
and U.S. companies is quite staggering.
47% o Canadian companies participating in the survey report oering no equityretainer, but equity to board members when they join the company. That compares
to only 32% o U.S. companies. 24 percent o Canadian companies reported oering
no equity retainer and no equity upon joining. That fgure is ar dierent at U.S.
companies. Thirty-seven percent o U.S. companies reported oering no equity retainer
and no equity upon joining, a 13-point discrepancy.
A mere our-point discrepancy was ound between Canadian and U.S. companies in the
Equity Retainer & Equity Upon Joining category. 24 percent o Canadian companies
reported oering both orms o remuneration, while a slightly higher percentage o
U.S. companies (28) said they oer both an equity retainer and equity upon joining
the board. Finally, only small percentages 5% o Canadian companies and 3% o
U.S. companies reported oering an equity retainer but no equity upon joining.
In the Silicon Valley sample, the board index indicated that 76% o the Silicon Valley
100 oer initial options (equity upon joining), and 91% oer annual options (retaineroptions).
Here again, Canadian companies are much more generous then their U.S. counterparts:
signifcantly less oer no equity, signifcantly more oer a retainer upon joining. U.S.
and Canadian companies are similar in the retainer-only equity and in the joining/
retainer equity compensation.
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Nature o Equity Compensation
When one looks at the nature o the equity compensation, Canadian companies have
simpler programs than their U.S. counterparts. They typically oer either ull-value awards,
or option-only awards, not a combination. This applies to all equity awards,whether they
are given when a board member joins or or their annual grants.
The percentage o companies with options or ull value stock in the equity portion o their
director compensation programs is airly similar among Canadian and U.S. companies.
(See Figure 8.1)Specifcally, 80% o the participating Canadian companies oering equity retainers said
they oer only options awards, while only 85% o U.S. companies oer option awards
exclusively. 20% o Canadian companies oer ull value awards only. Noteworthy is the
contrast to U.S. companies. A mere 5% oer ull value awards only, while 10% oer a
combination o ull value awards and option awards.
Among Canadian companies that oer equity upon joining the board, 73% o participants
cite the use o option awards exclusively, while 23% use ull value awards exclusivelyand 4% use a combination o the two strategies. By contrast, only 79% o U.S. companies
reported the exclusive use o option awards; 9% reported the use o ull value awards only
and 12% reported a combination o these compensation tools.
The notion o keeping things simple appeals to us, but perhaps fnancing structures
require both ull value and option awards to properly motivate board members.
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8.1: Equity Retainer and Equity Upon Joining Splits Canada and US
Option Awards Only80%
Option Awards Only85%
Full ValueAwards Only
20%
Equity Retainer:Canadian Companies
Equity Retainer:U.S. Companies
Equity Upon Joining:Canadian Companies Equity Upon Joining:U.S. Companies
Full Value Awards Only10%
Option Awards Only79%
Full Value Awards& Option Awards
9%
Full Value Awards Only12%
Full Value Awards& Option Awards
5%
Option Awards Only73%
Full Value Awards& Option Awards
23%
Full Value Awards Only4%
The data or equity compensation shows the median percent o shares outstanding upon
joining as well as an annual retainer or board members and or the board chair. Only
50% o companies give out stock options. This data is or companies providing stock
options. In terms o board members, a typical option grant would be 0.3% o the shares
outstanding upon joining and 0.1% per year. In terms o the median or the 30 www.vell.
com chair, a typical stock grant would be 0.5% upon joining and 0.1% per year. Figure 16
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CONCLUSION
The evidence is in. While Canadian companies share best practices with counterparts in
the U.S., there are also some signifcant dierences in the way Canadian companies work
with boards o directors. It is clear that companies in Canada and the United States must
take action to develop and incorporate best o breed practices or their boards o directors
in order to derive the maximum beneft rom members and to attract world-class talent.
The Entrepreneurial Boards Composition and Compensation Survey: The Canada Report
shows a signifcant variance in the number o board directors between Canadian andU.S. companies. Canadian corporations report between fve to eight directors, while U.S.
companies report between three and nine board members. With Canadian frms reporting
slightly more vacancies than companies in the United States, Canadas small companies
would do well to fll empty seats to maintain and perhaps even gain a greater competitive
advantage.
We have also ound that U.S. companies have ar more insiders on their boards, such
as venture capitalists, investors and ofcers, and ewer independents. This is a unique
opportunity to attract experienced executives to help steer a companys board. Both U.S.
and Canadian companies are not strong on flling empty board seats with key customer,
supplier and industry luminaries.
David Thomson, author o Blueprint to a Billion, analyzed the seven essentials o
growing companies rom zero to $1 billion in revenues. What he discovered is proound.
Tier 1 board members are common to every single company in his research that grew to$1 billion in revenue. He oers some valuable advice or companies looking to revamp
their boards, or create them or the frst time:
Blueprint company boards were heavily weighed with alliance partners, customers and
CEOs who had scaled a business. Companies with investor-dominated boards tended to
struggle. Blueprint company boards were a much valued extension o the companys
business strategy and management team. These external members provide cross-industry
experiences that can greatly beneft a company. We thought that smart investors woulddominate the most successul boards. While exceptions existed, Blueprint company boards
predominantly eatured some combination o customers, alliance partners and CEOs.
Whether an entrepreneurial company is seeking to break the billion-dollar revenue mark
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or not, The Entrepreneurial Boards Composition and Compensation Survey: The Canada
Report oers fndings that support the notion that careully selected boards are those that
draw rom a diverse base o industry experience and, consequently, oer well-roundeddecision-making capabilities. Selecting a board member needs to be based on company
strategy and complementing the existing skills sets o the leadership and governance team.
Given the act that more than one-ourth o Canadian companies that participated in the
survey have at least one board seat open, there seems to be either a lack o recognition o
a boards value, or a lack o understanding that entrepreneurial companies can attract
top-drawer talent.
While some frms may shy away rom taking on the cost o board members and thetime or meetings the data show that it doesnt take a billion dollars to attract a billion-
dollar mind. In act, most o the cash outlay is nominal or cash-sensitive companies. The
return on the investment is great. The risk is low. The data also show that entrepreneurial
companies do not have to settle or inexperienced board members.
Canadian companies are much more generous to their board members on cash
compensation and equity compensation. There is oten a ear that it would take more
to attract tier 1 board members, but the evidence is in that they do not need to alter their
compensation structure to attract Canadian, U.S. or international board members.
As a result o these trends, Vell & Associates suggests the ollowing approaches or
entrepreneurial irms:
Aggressively seek to ll empty board seats. Empty board seats devalue overall
production o the board and rob your company o the opportunity to draw rom
the wealth o experience that seat could oer.
Whenever possible, attempt to maintain a diversity of skill sets and industry
experience on your board. This will oer you a well-rounded perspective on the
opportunities and challenges your company aces. For example, attorneys may be
an untapped resource.
Ensure that the skills sets on your board match your company strategy and
complement the skill sets on the management team and the board.
There isnt one set formula for the ideal board member for a particular type of
company. The strategy o the company, paired with the skill sets that are already
on the management team, and the board dictate where the opportunities or an
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optimal board member lie.
Small boards are the norm. Seek to grow your board to between six and eight
members. Too many members can breed conusion; too ew can leave importantperspectives buried.
Dont allow nancial pressures to prevent you from seeking top-notch talent.
The overarching conclusion rom the Entrepreneurial Boards Composition and
Compensation Survey: The Canada Report is this: building and maintaining a strong
board o directors is vital. Keep in mind that the underlying reason or corporate
governance rules, such as independence o the board o directors, is or the companysgeneral health. Entrepreneurial companies in any industry typically cannot aord to hire
the cadre o C-suite executives that make up a dream team, but board o directors oer a
steppingstone that benefts the company today and in the uture.
Roger Raber, past president and CEO o the NACD, put it this way: Todays engaged
director is more committed than ever to providing rigorous analysis and making hard
decisions, as well as adding strategic value to the company and shareholders.
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# o each typecurrently
# o each typeopen
Company OfcerOutside corporateattorney/counsel
VC representative
Other signifcant investor
Customer
Vendor
Consultants
Independent
APPENDIX A
Governing Board1.1. Composition of Board
1.2. # Board Members who are family members of CEO
1.3. # of Board Meetings Per Year
1.4. # of Meetings Face to Face
1.5. Do you also have an Advisory Board?
Yes No
Background o Board MembersInstructions: This survey aims to identiy which aspects o corporate governance
(e.g., committees, unctions, and competencies) are currently ollowed. Even though the
company may not employ all aspects, please complete the survey questions that ask oryour view o the importance o each aspect.
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3.3. Board Member Per Board Meeting Fee
3.4. Board Member Annual Retainer Cash amount
3.5. Board Member Per Committee Meeting Fee
3.6. Vesting Period Years
3.7. Board Chair - Compensation on Joining Board
% o total sharesoutstanding
(Fully diluted)
VestingPeriod
(Years)
Vesting Period(Schedule)
Restricted Stock Units
CommonShare Grants
Stock Options
Deerred Stock
3.8. Board Chair Annual Retainer (In 1000 USD)
% o total sharesoutstanding
(Fully diluted)
VestingPeriod(Years)
Vesting Period(Schedule)
Restricted Stock Units
CommonShare Grants
Stock Options
Deerred Stock
3.9. Board Chair Annual Retainer - Cash
3.10. Board Chair Fee per Board Meeting - Cash
3.11. Board Chair Fee per Committee Meeting - Cash
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$5.1M - $10M
$10.1 - $25M
$25.1 - $50M
$50.1M - $100M
> $100M
N/A
4.7. Headquarters of Company
Country:
State/Province:
4.8. Contact Information for Report Results
Name:
Title:
Organization:
Phone:
Email:
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APPENDIX B
Entrepreneurial Boards Composition SurveyFindings rom the Vell Entrepreneurial Boards Composition Survey
ABOUT THE SURVEY
Vell & Associates set out to reexamine the state o board director membership in
entrepreneurial companies. Our goal in this document is to:
Identiy trends in board practices and corporate governance o entrepreneurial
technology companies
Provide a baseline to benchmark practices and compensation
Compare and contrast practices o private companies and public companies
Analyze the reasons or the dierences in practices
Establish a benchmark to measure uture trends in board membership
Over the course o our months, Vell & Associates contacted a non-random sample ocompanies and 150 responded. The survey was conducted through a targeted e-mail
distribution to ensure optimal response. Vell & Associates sent invitations to participate
in the survey to CEOs, venture capitalists, vice presidents o human resources and board
members.
The survey questionnaire posed roughly 25 questions, requiring over 150 separate data.
These questions spanned three broad categories: (1) company characteristics,
such as size, industry, and ownership structure, (2) board composition and background,
and (3) board remuneration. These responses represent the primary data on which this
reports indings are based. (Note: Approximately 150 companies completed at
least one section on the electronic survey. )
For a detailed view o the geographic and industrial sectors o the respondents, see
the charts displayed on the ollowing pages. Approximately 50% o the companies
had average annual revenues o less than US$10 million. That makes the revenue othe sample frms much smaller than those studied in earlier research. The majority
o responding frms were privately held companies. Two thirds o frms have been
operating or more than 10 years.
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Demographic Characteristics of Sample Firms
Vell & Associates purposely chose a broad range o companies in terms o varied locations,
industries, ages, sizes, and ownership structures in order to defne both corporate-wideand more granular trends.
O the 93% o survey respondents with headquarters in North America, 63% are located
in the U.S. and 30% are located in Canada. (See Figure 1a.) The remaining 7% o
participating frms are headquartered Europe and in Japan.
Figure B1: Global Geographic Concentration
France 2%
Hungary 1%UK 2%
Greece 1%Japan 1%
Canada30%
USA63%
U.S. State Geographic ConcentrationO the 63% o responding frms that are headquartered in the U.S., the majority are
based in Massachusetts. Caliornia, Connecticut, New Hampshire, and Pennsylvania
are also represented in the survey results. (See Figure 1b.)
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Figure B2: State Geographic Concentration
Connecticut6%
California6%
Other 33%
Pennsylvania5%
New Hampshire5%
Massachusetts45%
Canadian Province Geographic Location
O the 30% o frms that are headquartered in Canada, the majority are located in Ontario.
However, Quebec, British Columbia and Alberta are also represented in the survey.
(See Figure 3.)
Figure B3: Canadian Province Geographic Concentration
Ontario69% Quebec
13%
BC and Alberta18%
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Industry Concentration
Vell & Associates elicited responses rom a wide variety o industries, rom educationand healthcare to hardware and telecommunications. In act, the survey represents the
practices in more than 18 industries, which include utilities, retail, fnancial services,
banking, insurance, real estate, consumer products manuacturing and consumerservices,
manuacturing, aerospace and automotive, business services, and sotware.
More than 40% o the frms represented in the survey serve the sotware industry.
Approximately 9% o the participating frms are involved in producing telecom
equipment, while another 7% provide telecommunications services. (Figure 2summarizes the industry concentration among respondent companies.)
Figure B4: Industry Concentration
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
Education
Utilities
Retail
Healthcare
Financial Services, Banking, Insurance, Real Estate
Consumer Products Manufacturer & Consumer Services
Manufacturing, Aerospace, Automotive
Hardware
Telecommunications Services
Business Services
Telcommunications Equipment
Other
Software
Years in Operation
The irms that responded to the survey have a common thread: most are younger
businesses. One third o the companies represented in the survey have beenincorporated or less than ive years. Two thirds o the irms have been incorporated
or ive to ten years. None o the respondents have been incorporated or longer
than ten years. (See Figure 3.)
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Figure B5: Number of Years Since First Incorporated
5.1 - 10 Years
3.1 - 5 Years
2.1 - 3 Years
1.1 - 2 Years
< 1 Year
0% 10% 20% 30% 40% 50% 60% 70%
Revenue of Sample Firms
Most o the responding frms have revenues o less than US $10m. Only 11% o the sample
frms had annual revenues o over US$100 million. By contrast, the average frm in the
NACDs study o Eective Entrepreneurial Boards had average annual revenues o US$122
million. The proportion o respondents that are privately held 77% is similar to the
NACD Survey.
Figure B6: Size (Revenues)
> $100M
$50.1M - 100M
$25.1M - 50M
$10.1M - 25M
$5.1M - 10M
$1.1M - $5M
< $1M
0% 5% 10% 15% 20% 25%
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$125.00