Nearly half (47%) of the S&P 1500 companies studied by the Hay Group modified at least one component of their directors’ compensation resulting in a median increase of more than 13% to their total director direct compensation.
On the surface, these changes appear modest given that most experts anticipated a sizable increase in director compensation. However, since the median stock price in the group dropped approximately 16%, and a majority of director compensation programs designate director equity compensation as a fixed number of shares, it is not surprising that equity valuations would be impacted, the Hay Group said. Factoring in changes in stock price, the median director total direct compensation package actually increased by approximately 30%.
The reasons for the compensation change, according to the study: new regulations that have effectively reduced the pool of qualified independent directors, as well as increased personal risk, commitment, and accountability.
The study also revealed that companies are continuing to rely heavily on stock options. Stock option use declined by only 2% to 72% of all S&P 1500 companies. Use of restricted/deferred stock increased to 28% of S&P 1500 companies up from 24% in the prior year, the Hay Group said.
The study examined year-over-year changes in director compensation levels of S&P 1500 companies. Data was collected by the Investor Responsibility Resource Center (IRRC) from proxy statements filed before July 31, 2003.