Total pay for outside or non-executive directors at 469 of the largest U.S. companies rose 3% to $226,994, based on the median levels of companies that filed their 2012 fiscal year proxy statements by June 30 this year, according to a study released Tuesday by Towers Watson.
That total is up from the $220,000 median total pay in last year’s study by the global consulting firm.
The increase was “fueled by faster growth in the cash components of director compensation,” wrote Michael Bowie, author of the six-page report based on the study and senior analyst in Towers Watson’s executive compensation resources group.
“The median value of total cash compensation increased 8% over the last year, while median stock compensation remained flat” at $125,002, Mr. Bowie wrote in the report. “The increase in total cash fees was driven primarily by increases in annual cash retainer values as well as the continuing shift toward flat, retainer-based committee compensation and away from more variable forms of pay, such as per-meeting fees.”
“Many companies structure their director pay programs to provide an even mix of cash and equity,” resulting in an “overall average pay mix for Fortune 500 directors (of) 45% cash and 55% equity,” Mr. Bowie wrote.
“Stock ownership requirements and retention guidelines remain a fixture of governance programs and director pay programs at the vast majority of large U.S. companies,” Mr. Bowie wrote in the report. “Eighty-nine percent of the Fortune 500 currently have one or both mandates in place, an increase from 87% in our previous analysis. … The median ownership requirement based on some multiple of the retainer remains five times the annual retainer. The median total value of required ownership increased from $300,000 to $350,000 in fiscal 2012, driven largely by increased annual retainers at companies with retainer-based guidelines.”
Todd Lippincott, leader of executive compensation for the Americas at Towers Watson, said in an e-mail responding to a question about the amount of the compensation, “Director compensation reflects a multitude of company-specific factors, such as complexity and size, as well as broader market forces. Companies are generally quite thoughtful in determining their direct compensation packages and reflecting these factors. The market for directors is also transparent and relatively deep, which also helps to keep compensation within boundaries.”
In terms of the right balance between equity and cash of director compensation, Mr. Lippincott said: “There isn’t a one-size-fits-all approach to director compensation levels or mix. We generally think that a balance between cash and equity makes sense, with a bias towards equity. The market reflects this.”
While Towers Watson declined to disclose the exact extreme ranges of director compensation of the companies studied, it provided percentile ranges. In the 90th percentile was $305,365 in fiscal 2012, up from $296,496 the previous year, while the 10th percentile was $161,783 and $154,801 for the same periods.
The study examined 469 publicly owned companies in the 2013 Fortune 500. The 2011 sample consisted of 468 public companies in the 2012 Fortune 500 list.