Public company boards set their own pay. At Minnesota firms, that averages $250,000.

Minnesota’s 50 largest companies paid their non-employee board members $112.7 million last year. That’s an average of $250,423 per director.

A dozen of the companies paid more than $3 million a year for board work.

As the economy became global and more complicated — and as companies grow — the role of directors has come with more responsibilities as well.

As executive pay has gained more scrutiny, board pay has, too. Not only do these board members set CEO pay, they set their own. And while directors often put in more hours than the required meetings and briefings, they are still part-time employees, even with their weighty responsibilities.

Outside of standard meetings they also must weigh in on acquisitions, strategic plans and crisis situations.

“To be to be honest, the board service used to be cushier ... but those days have been gone for a long time,“ said Lee Mitau, a former board chair at Graco and current board chair at H.B. Fuller. “In the modern world, it’s a difficult job. It’s a much more intense regulatory environment, everywhere.”

Regulators and investors also are looking at other factors, including board demographics to make sure directors represent the diversity of the companies, both because of social shifts and studies that show diversity is better for business outcomes.

Nationally, the average pay for S&P 500 board members was $321,220, up 2% from $316,091 in 2022, according to an annual Spencer Stuart board index. Overall board compensation is up around 30% from a decade ago or increasing approximately 3% each year. The average among Minnesota’s 50 largest public companies is smaller because only 17 Minnesota companies are in the S&P 500 index.

Board members, like executives, are paid in a combination of cash and equity awards. The equity awards are meant to align the interest of directors with those of shareholders.

Not surprisingly, Minnesota’s largest public company, UnitedHealth Group, paid its directors the most, at $376,660 per member.

The highest-paid board member in Minnesota last year, though, was at a much smaller company, Northern Oil and Gas (NOG). Bahram Akradi, the company’s independent chairman, last year received $720,000.

NOG officials acknowledge Akradi’s compensation is above market rate. They pointed to the company’s proxy statement and declined to answer further questions regarding Akradi, who also serves as chair and CEO of Life Time Group Holdings, where he made $1.6 million in 2023.

“The board has determined that his compensation is appropriate in order to reward him for his efforts and the company’s success, and to incentivize him to remain in this role,” the NOG proxy said.

The company also pointed to Akradi’s expertise, extensive work and dedication to the board. He joined the NOG board in 2017 and the company credits him with leading its restructuring and strategy. From 2016 to 2023, Northern Oil and Gas revenue grew from $160 million to $1.9 billion.

While CEO compensation has gotten more shareholder scrutiny over the years with say-on-pay votes, board compensation has gotten less — and that’s a problem, said activist investor Mike Levin.

“Directors design and approve the structure and amount of their compensation without any shareholder oversight,” Levin said.

Levin acknowledges the role of a director has grown, both in time and effort, but he said the total compensation paid to directors is not material to the company.

“Its amount, which is very nice for directors, ... has not necessarily even grown to the same extent as the workload for a director,” Levin said.

Mitau, who served on Graco’s board for 34 years and on H.B. Fuller’s for 28 years so far, said the types of expertise needed and overall expectations of board members has changed over the years. Historically, some served on many boards; that is not the case anymore, partly because companies don’t allow it.

In the 1980s and 1990s, a former chairman and CEO of 3M served on 11 other boards.

Today, it is rare for a sitting CEO to serve on more than one other board, and many companies have put limits on the number of boards their CEOs and directors can serve on.

Boards of S&P 500 companies met on average 7.5 times in 2023, down slightly from historical averages and down from the average of 9.5 meetings held in 2020 during the height of the pandemic, according to the Harvard Law School Forum on Corporate Governance.

Seven to 10 meetings a year might not sound like a lot. But the meetings, presentations, committee meetings and dinner commitments might stretch over a couple of days. Board meetings might also involve site visits to facilities anywhere in the U.S. or across the world.

Paula Skjefte, a former Medtronic executive and co-chair of the Minnesota chapter of Women Corporate Directors, estimates that board meetings these days last about 20 hours between the actual meeting, presentations and dinner with the CEO.

“But if that’s 20 hours, you better have put 20 hours into preparing and reviewing all the board materials before that to have an impact,” she said. “So now you’re at 40 hours.”

Add another 10 hours for committee meetings and prep work for those meetings, Skjefte said. That’s a total of 50 hours in months with board meetings and maybe 20 hours during other months.

Turmoil, including internal issues but also natural disasters or geopolitical events, or a major acquisition adds more meetings or late night or weekend phone calls.

“I always tell people ... you have to maintain surge capacity,” Skjefte said.

Effective board members also need to stay abreast of new strategic issues and the trending regulatory, workplace and societal changes in corporate America.

“It’s not the actual amount of time you’re sitting in the chair that is the principal part of the commitment,” Mitau said. “Boards are entrusted with a tremendous responsibility ... the oversight of enterprises worth billions of dollars.”

For example, a year ago the Securities and Exchange Commission adopted new rules on cybersecurity risk management.

”Whether a company loses a factory in a fire — or millions of files in a cybersecurity incident — it may be material to investors,” wrote SEC chair Gary Gensler in its news release announcing the rule change.

The mandate is meant to bring consistency to cybersecurity disclosures. While the new rule doesn’t state that there needs to be a cybersecurity expert on the board, it’s something a company must consider.

In the past five years, boards also have had to deal with an slew of environmental, social and governance (ESG) issues. According to an article from the Harvard Law School Forum on Corporate Governance, there were over 600 ESG-themed shareholder proposals in 2022 and 2023, and, as of April, a similar number was expected in the 2024 proxy season.

A smaller number of anti-ESG measures that have been driven by political partisanship but have been time-consuming though they have generated little support from shareholders.

“There is little popular support for such naked partisanship, however, and certainly none in the investment world when these ideas are made explicit” said Heidi Walsh, executive director of the Sustainable Investments Institute. “These groups and their allies have nevertheless cast a chill on proxy season. Average support for anti-ESG proposals dropped last year to an abysmal 2.5 percent despite a surge to 53 votes, up from only eight in 2021.”

Regulatory groups have also begun to insist on diversification, in part because repeated research has shown that more diverse and inclusive boards ask more and different questions that lead to better corporate performance.

Women and people of color are still underrepresented on corporate boards but there has been incremental progress in broadening the pool of qualified candidates. St. Catherine University in St. Paul found in its latest census of women in corporate leadership that the percentage of women on Minnesota-based boards of directors reached 30% in 2023, up from 28.2% the prior year.

That’s on par with national figures. The group 50/50 Women on Boards and Equilar Inc. found that among Russell 3000 companies 29.7% of board seats were held by women, up only 0.8% from the previous year. They estimate at the current rate of progress it will be 2045 before companies reach gender parity on boards and women of color make up 20% of the seats.

“In my world, and not just not just the two companies I’ve been on, but all the people that I know on boards, that’s still very topmost on their mind, that increased diversity and gender parity,” Mitau said.

In the end, good judgment and an overall commitment to knowing a company and its industry are key.

“The most important asset of a director is the big picture view — good judgment, good ethics, good EQ, you know, good leadership skills,” Mitau said.

Skjefte jokes that directors need to know how to have their “heads in but hands out.” In other words, consult and advise, don’t tell executives how to run things. In legal terms, it’s referred to as the duty of loyalty and duty of care, meaning a director must do what’s best for shareholders.

As a board chairman, Mitau has needed to rein in the enthusiasm of some high-performing individuals who were used to solving problems as CEOs or senior executives and were trying to do the same as board members.

“The role of the director is oversight, it’s not management of the day-to-day business,” Mitau said. “And sometimes, that line is a hard to draw.”