Directors Pay Evolves

By Todd Henneman

Apr. 20, 2015

Lifted by larger equity awards, pay for board members of the largest U.S. companies rose to a median of $240,000 in fiscal 2013, according to research from consulting firm Towers Watson & Co.

That’s 6 percent more than what board members earned in 2012 and 39.5 percent more than what they were paid in 2007, when proxy disclosure rules began requiring companies to report actual values received by directors.

The pay raise came in the form of stock compensation. Cash payments remained flat, but annual and recurring stock awards increased 4 percent.

But the structure behind cash payments has evolved, said Robert Newbury, director of executive compensation resources at Towers Watson.

Companies are moving away from per-meeting fees and toward fixed retainers. Less than one-quarter of companies pay directors per-meeting fees for attending board meetings and only 28 percent pay-per-meeting fees for attending committee meetings, Towers Watson data show.

Retainers have increased for serving on audit committees and others under increased scrutiny and requiring more work in an era of increased shareholder activism and rules in the Sarbanes–Oxley Act of 2002 and other laws, Newbury said.

Aaron Boyd, director of governance research at pay-data firm Equilar Inc., said the more frequent discussions among board members introduced a basic problem with pay-per meeting: What qualifies as a “meeting”?

“We’ve seen companies move away from meeting fees toward retainers because the job has become more involved and because directors are spending more time on it, defining what a meeting fee is a little fuzzier,” Boyd said.

Fortune 500 companies also increasingly separate the roles of CEO and board chair, with 47 percent adopting this board-leadership structure, Towers Watson said.

Calls for independent board chairs were the most prevalent type of shareholder proposal at annual meetings in 2014, according to Institutional Shareholder Services Inc., the nation’s biggest proxy adviser.

“More and more companies are under crosshairs of maintaining independent board leadership and getting people with combined chair and CEO roles to give up that role,” Newbury said.

Companies paid these nonexecutive board chairs a premium — a median of $150,000 — for their services, Towers Watson’s research found.

“When the majority of U.S. companies are separating that role,” Newbury said, “it will be a monumental event in the course of governance practice and board leadership among companies.”

Todd Henneman is a writer based in Los Angeles.

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