Median total compensation of outside corporate directors surpassed the $200,000 threshold for the first time in 2009, rising to $200,698, according to a Towers Watson & Co. analysis on director compensation at 469 major U.S. companies.
However, that represents only a 0.4% increase from the 2008 level — far below the 3% median increase from the previous year and the nearly 10% median annual increase during the earlier part of the past decade prior to the economic crisis, wrote Theresa Tovar, consultant, and Robert Newbury, senior consultant, who co-authored the study, “Has Director Pay Found Its Floor?”
Of the 17 companies identified in the Towers Watson 2008 analysis that cut directors' pay during the economic downturn, 13 of them reinstated pay to pre-economic collapse levels, the 2009 study said.
In the past year, more companies eliminated board-meeting and committee-meeting fees, replacing them with fixed retainers. Some 40% of companies paid board-meeting fees last year, down from 44% in 2008; some 45% of companies paid committee-meeting fees last year, down from 48% in 2008.
Of the 21 companies that eliminated board-meeting fees in 2009, 15 of them provided a corresponding increase to their annual board cash retainer. And 12 of the 16 companies that eliminated committee-meeting fees in 2009 provided an increase in the retainer provided for the committee service.
Median cash compensation increased 1% to $85,000 last year compared with 2008, while the median value of equity awards also increased 1%, to $104,939.
Among other survey findings, the number of companies that operate with a separate chair and CEO rose to 38% last year, up one percentage point from 2008. Those companies paid their non-executive board chairs an average additional $150,000 above that provided for regular board service, bringing their median total pay package to about $347,000 in 2009, or 175% of the total compensation of a typical director. That incremental amount is unchanged from the 2008 median level.
Audit committee members received larger retainers, a $10,000 median value in 2009, compared with the median value of those who serve on compensation committees or governance/nominating committees, respectively, $7,500 and $6,000. Audit committee chairs received a median $15,000, while chairs of compensation committees or governance/nominating committees received a median $10,000 each. “The higher fees are to compensate directors for added time requirements and responsibilities associated with the enactment of the Sarbanes-Oxley Act,” a statement about the study said.
Based on median compensation levels, the mix of pay for directors included 48% cash and 52% equity in 2009, compared with 46% cash and 54% equity in 2008, the study said.
“Director pay programs have been somewhat insulated from the effects of recent volatility in stock prices because most companies grant equity awards based on a fixed value, rather than awarding directors a fixed number of shares,” Ms. Tovar and Mr. Newbury wrote in the study.
Some 78% of the companies in the study award grants to directors using a fixed-value approach, while the remaining 22% grant a fixed number of shares to their directors.
The use of mandated stock ownership requirements for directors — a requirement designed under the belief that stock ownership helps align the interests of directors and shareholders — rose to 80% in 2009, the study said. In 2008, it was 78% and in 2003, it was only 19%.
Towers Watson based it latest analysis of outside director compensation on proxy statements filed as of June 30 for 469 major publicly traded companies. The previous year's study analyzed 461 companies. n