The spotlight over executive compensation is extending to that of those who set CEO pay, says Ralph Ward, editor of governance monthly Boardroom Insider.

While there was a post-Sarbanes-Oxley run-up in public company board pay, when the economy tanked, directors felt the pain too. The last couple of years their pay has been flat. Primarily because much board pay now comes in stock and options, boards felt the stock market's woes before the recent rally in their paychecks.

Typically directors are paid half in stock and half in cash. The 50/50 split is somewhat schizophrenic and represents the dual, sometimes clashing roles of a corporate board. Ward says equity pay, whether in stock, or options, represents the hands-on, value-adding, employee role of the board. It puts them on the side of the shareholders, especially as directors accumulate it. Directors are there to give management feedback, ideas (sometimes a spanking) toward boosting shareholder value. Equity motivates board members to drive results, take risks and improve the stock price, he argues. It is a reward for saying "yes."

Cash, on the other hand, encourages something different altogether. It insulates directors from pay for performance, and rewards a more risk-averse, regulatory emphasis. Directors are paid to assure that legal requirements are met, that financials and controls are in order, and that risks are carefully weighed. They monitor the corporation on behalf of shareholders, and should be as disinterested in the results, good, or bad, as an outside audit firm. It is a reward for saying "no."

 Since each type of board pay rewards behavior that no investor would want exclusively, boards today are mixing the two. But Ward wonders whether that blend amounts to a mixed message to directors.

Ward offers other noteworthy observations in the March issue. There is a shift away from "meeting" fees, meaning in some quarters attendance doesn't count toward reward based on value delivered. Instead, the board pay now often is based more heavily on director value, role, and the board's pay philosophy. Currently, says Ward, directors are receiving a base amount of value, and then added "plusses" for service on committees, or leadership of the board or a committee. Coming down the road may be further stratification based on individual committees (audit will always be more demanding than the Social Responsibility Committee), unique skills (should audit's "financial expert" be paid more?), tenure (should board seniority be rewarded?) and that old flashpoint, board pay based on company results.

As for the future of board pay, Ward expects more teeth for board stock ownership rules. Some of that has already been showing up during the past decade, with more boards imposing informal (or even written) requirements that members accumulate and hold a certain amount of stock in the company, often a multiple of annual board fees.

Typically, however, there are no consequences if a director fails to meets targets. But with much stronger disclosure today on such policies and director holdings, that is starting to change. When board pay is a split between cash and equity, one increasingly common tactic, says Ward, is to increase the amount of stock paid until targets are met.

Another possibility coming down the pike is new deferred compensation vehicles. More board pay today goes into restricted stock or stock units that are off limits in various ways, often until sometime after the director leaves the board. This sounds like a natural way to defer income to retirement for these often highly-paid executives, says Ward. But, this also puts a large chunk of future income into one, non-diversified vehicle, and demands careful thought on structuring this nest egg for tax purposes. Look for a new wave of income deferral devices to reflect this demand, predicts Ward.

 What you can count on for sure, is more debate and drama on the topic. Stay tuned.