Directors were elected annually at 55% of all S&P 500 companies in 2006, the first time a majority of the companies have declassified boards, according to a new Institutional Shareholder Services study of board practices and pay. The number of S&P 500 companies with classified boards — where directors serve multiple-year terms — dropped 8 percentage points to 45%, the study found.
The study examined the board structure and compensation of directors at 1,433 of the companies in the S&P 1500 based on 2006 disclosures through last Nov. 6. It includes 481 companies in the S&P 500 index.
Also, 54% of the S&P 1500 companies reported granting stock options to directors last year, down from 58% in 2005, the study found. At the same time, use of restricted or deferred share awards or a combination of the two jumped to 51% in 2006 from 44% in the previous year, marking the first time since ISS began the annual study in 1996 "that more than half of the companies made these awards," according to an ISS statement.
"This landmark report demonstrates that companies are responding to shareholder concerns regarding board structure, independent leadership and stock compensation," Carol Bowie, vice president of ISS' governance research service, said in the statement. "At the same time, directors' pay continued to rise at about the same rate as executive compensation generally."
Director pay was up 12% to an average $160,493, the study found. "The recent growth in director pay stemmed from both a rise in cash pay levels and the increase in stock prices fueling the value of equity awards," the statement said.