Early Look: Director Pay up 5% at $225K
Director total remuneration among 100 early proxy filers rose $10,634 (+5%) over the prior year to a median $225,235. The results are based on a study by executive compensation consultants Steven Hall & Partners of the 100 companies with revenues greater than $1 billion that file their proxies the earliest.
“The increase in pay is primarily attributable to an increase in equity compensation, which now represents 55% of total compensation paid to directors. This is in line with governance best practices that recommend at least half of director pay be in the form of company stock,” noted Joseph Sorrentino, Managing Director of Steven Hall & Partners.
In 2013 total director compensation included a median $120,000 in equity awards and $67,500 in cash retainers for board service. It also assumes fees and retainers for chairing one committee and serving on another committee.
Consistent with prior year results, a minority of companies in the study, 31%, pay fees for attendance at general board meetings. “Meeting fees make sense for some companies,” commented Mr. Sorrentino. “In particular, companies with unpredictable or inconsistent workloads and meeting schedules need the flexibility that meeting fees provide. It allows for pay to be more directly correlated to the amount of time expended by directors.”
Shift to Full Value Shares Continues
Continuing a trend begun several years ago, companies are eliminating option awards to directors in favor of full value shares. In 2013, five companies out of the 100 in the study eliminated options, and now only 16% of the companies in the study grant options.
Nearly all (96%) grant full value shares to directors. “It’s preferable for directors to be outright owners of company stock, rather than optionees, since their role is to focus on the needs of long-term shareholders. This rationale also helps to explain why so few companies award performance-based pay to directors,” said Michael Sherry, Consultant of Steven Hall & Partners.
Compensation for Committee Service
Almost all companies in the study provide additional compensation for directors who serve on Board committees. Besides the regular board meetings, which average seven per year, committee members typically prepare for and attend four to eight more meetings per year.
Payment of an annual retainer for chairing a committee is nearly universal among the companies. Ninety-seven percent pay separate retainers to audit committee chairs; 96% pay compensation committee chairs; and 94% pay nominating/governance committee chairs. Median payments are $20,000, $15,000, and $10,000, respectively. “These payments reflect the additional responsibilities and time commitment, as well as reputation risk, of modern-day committee chairmanship,” said Mr. Sherry.
Seventy-four percent of companies in the study pay a committee retainer and/or a committee meeting fee to members of the audit committee; 64% of companies pay compensation committee members; and 60% pay nominating/governance committee members. The median committee membership retainers range from just over $7,000 to $10,000, and median committee fees range from $1,500 to $1,625 per meeting. Committee compensation was largely flat on a year-over-year basis.
Few Director Perks
Separately, Steven Hall & Partners also analyzed perquisites provided to directors. The perquisites paid to all directors in the study totaled only $7,151 at median per company, or less than $800 per director. This result is not surprising as offering perks to directors is uncommon today and is usually limited to benefits like life and travel insurance, matching charitable grants, or spousal business travel. Pension benefits were phased out long ago. “Directors are compensated today through cash and equity. Evolving corporate governance practices have all but eliminated board perquisites,” noted Mr. Sorrentino.
Total Board Cost
Total Board Cost (“TBC”) equals the sum of directors’ cash, equity, pension value changes, and all other compensation amounts as reported in the director compensation table in the proxy statement. Analyzing TBC provides companies with another perspective on director compensation as they review and contemplate changes to their current programs. Steven Hall & Partners found that median TBC for this group of companies was $1.9 million, which represented 0.04% of fiscal year revenues.
Director Pay at a Glance
Total $ Value – Median (Numbers are not additive)
|Total Annual Retainers||$200,000||$185,000||+8.1%|
|Total Committee Fees (Retainers and Meeting Fees)|
|Total Remuneration Average Director *||$225,235||$214,601||+5.0%|
* Assumes 1 committee chair position and membership on another committee
About the Companies in the Study
Among the 100 companies in the study, at median:
- Revenues were up 5% over 2012
- Net income was up 8%
- Total shareholder return (TSR) was up 32%
About the Study
The study analyzed compensation data for the most recent two years as disclosed in the first 100 definitive proxy statements filed in 2014 for companies with revenues greater than $1 billion. For additional details regarding the study please contact Andrew Healy at 212-625-2363 or email@example.com.
About Steven Hall & Partners
Steven Hall & Partners is an independent executive compensation consulting firm serving as outside counsel to boards, compensation committees and management. The firm focuses solely on executive compensation, director remuneration and related corporate governance matters. For more information, please visit http://www.shallpartners.com/
To view information on CEO pay among this same group of early filers, go to http://www.shallpartners.com/our-thinking/short-takes/press-release-ceo-pay-up-7-for-early-filers-realized-vs-realizable-pay-enters-pay-debate/