Board Pay Packages Soar

August 19, 2002 ( - Board member actions - and inactions - have been coming under increased scrutiny of late - while compensation for their actions has continued a strong upward trend.

A new Mercer Human Resource Consulting survey found that median total direct compensation for outside directors was up 6.8% to $104, 439 in 2000 and another 10.9% hike to $115,687 in 2001 at 350 large US firms. It was the first time the figure actually crossed the $100,000 threshold, Mercer said.

Meanwhile, executive compensation actually fell at these companies in 2001, Mercer said.

Median total direct compensation for CEOs (base salary, annual bonus, and the grant value of long-term incentives) went up 6.9% in 2001 to $7,036,878 – the smallest increase in the decade Mercer has conducted the survey – while median total annual compensation (base salary plus annual bonus) actually dropped 2.8% in 2001 to $1,603,125.

Pay “Grade”

Here’s how some of that director pay broke down, according to Mercer:

  • the total annual retainer for directors (includes both cash and shares) increased from a median $34,000 in 2000 to $35,000 in 2001
  • board meeting fees increased from a median $1,300 per meeting to $1,500 per meeting
  • long-term incentive compensation rose from a median $56,350 in 2000 to $61,568 in 2001
  • other elements of director pay remained stable, including committee meeting fees (median of $1,000 per meeting) and committee chairman retainers (median of $5,000 per year).

Use of Company Shares

Mercer’s study shows that stock continues to play an increasingly significant role in director compensation. 

Stock grants made up 59% of directors’ pay mix in 2001, compared to 57% in 2000 and 44% in 1997.  Virtually all of the companies studied – 95% in 2001 and 94% in 2000 – make stock grants to directors.  A small percentage (4.3% in 2001 and 2000, up from 3.7% in 1999) pays directors 100% of their annual retainer in stock.

While no SEC requirements exist for disclosure of ownership guidelines in the annual proxy statement, 20% of the companies in Mercer’s latest study indicated that they had stock ownership guidelines in place for their directors, up from 18% in 2000 and 11% in 1997.  Directors are often given a specific time frame to comply with the requirement,

With the exception of deferred compensation plans, benefits play a diminishing role in overall director compensation; 79% of the companies offered some type of benefits to directors in 2001, down from 80% in 2000 and 84% in 1997.

Mercer also expects to see more widespread and rigorous evaluation of boards and individual board members.